Skip to main content

Full text of "LEGISLATIVE HEARING ON S. 1733, CLEAN ENERGY JOBS AND AMERICAN POWER ACT"

See other formats


AUTHENTICATED , 
U.S. GOVERNMENT ^ 
INFORMATION ' 


S. Hrg. 111-1214 

LEGISLATIVE HEARING ON S. 1733, CLEAN 
ENERGY JOBS AND AMERICAN POWER ACT 


HEARING 

BEFORE THE 

COMMITTEE ON 

ENVIRONMENT AND PUBLIC WORKS 
UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

OCTOBER 27, 2009 


Printed for the use of the Committee on Environment and Public Works 



Available via the World Wide Web: http://www.gpo.gov/fdsys 




S. Hrg. 111-1214 


LEGISLATIVE HEARING ON S. 1733, CLEAN 
ENERGY JOBS AND AMERICAN POWER ACT 


HEARING 

BEFORE THE 

COMMITTEE ON 

ENVIRONMENT AND PUBLIC WORKS 
UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 
OCTOBER 27, 2009 


Printed for the use of the Committee on Environment and Public Works 



Available via the World Wide Web: http://www.gpo.gov/fdsys 


U.S. GOVERNMENT PUBLISHING OFFICE 
99-887 PDF WASHINGTON : 2016 


For sale by the Superintendent of Documents, U.S. Government Publishing Office 
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 
Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 




COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 


ONE HUNDRED ELEVENTH CONGRESS 
FIRST SESSION 

BARBARA BOXER, California, Chairman 
MAX BAUCUS, Montana JAMES M. INHOFE, Oklahoma 

THOMAS R. CARPER, Delaware GEORGE V. VOINOVICH, Ohio 

FRANK R. LAUTENBERG, New Jersey DAVID VITTER, Louisiana 

BENJAMIN L. CARDIN, Maryland JOHN BARRASSO, Wyoming 

BERNARD SANDERS, Vermont MIKE CRAPO, Idaho 

AMY KLOBUCHAR, Minnesota CHRISTOPHER S. BOND, Missouri 

SHELDON WHITEHOUSE, Rhode Island LAMAR ALEXANDER, Tennessee 
TOM UDALL, New Mexico 
JEFF MERKLEY, Oregon 
KIRSTEN GILLIBRAND, New York 
ARLEN SPECTER, Pennsylvania 

Bettina Poirier, Staff Director 
Ruth Van Mark, Minority Staff Director 


(II) 



CONTENTS 


Page 


OCTOBER 27, 2009 

OPENING STATEMENTS 


Boxer, Hon. Barbara, U.S. Senator from the State of California 1 

Inhofe, Hon. James M., U.S. Senator from the State of Oklahoma 3 

Kerry, Hon. John, U.S. Senator from the State of Massachusetts 5 

Baucus, Hon. Max, U.S. Senator from the State of Montana 14 

Alexander, Hon. Lamar, U.S. Senator from the State of Tennessee 15 

Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota 17 

Bond, Hon. Christopher S., U.S. Senator from the State of Missouri 20 

Specter, Hon. Arlen, U.S. Senator from the State of Pennsylvania 21 

Crapo, Hon. Mike, U.S. Senator from the State of Idaho 22 

Udall, Hon. Tom, U.S. Senator from the State of New Mexico 24 

Voinovich, Hon. George V., U.S. Senator from the State of Ohio 25 

Lautenberg, Hon. Frank R., U.S. Senator from the State of New Jersey 87 

Barrasso, Hon. John, U.S. Senator from the State of Wyoming 89 

Merkley, Hon. Jeff, U.S. Senator from the State of Oregon 90 

Vitter, Hon. David, U.S. Senator from the State of Louisiana 91 

Whitehouse, Hon. Sheldon, U.S. Senator from the State of Rhode Island 94 

Sanders, Hon. Bernard, U.S. Senator from the State of Vermont 96 

Cardin, Hon. Benjamin L., U.S. Senator from the State of Maryland 97 

Gillibrand, Hon. Kirsten, U.S. Senator from the State of New York, prepared 
statement 267 


WITNESSES 


Chu, Hon. Steven, Secretary, U.S. Department of Energy 

Prepared statement 

Response to an additional question from Senator Lautenberg 

Responses to additional questions from: 

Senator Inhofe 

Senator Voinovich 

Senator Vitter 

Response to an additional question from Senator Barrasso 

Responses to additional questions from Senator Alexander 

LaHood, Hon. Ray, Secretary, U.S. Department of Transportation 

Prepared statement 

Responses to additional questions from Senator Inhofe 

Response to an additional question from Senator Barrasso 

Salazar, Hon. Ken, Secretary, U.S. Department of the Interior 

Prepared statement 

Responses to additional questions from: 

Senator Inhofe 

Senator Barrasso 

Jackson, Hon. Lisa P., Administrator, U.S. Environmental Protection Agency . 

Prepared statement 

Responses to additional questions from: 

Senator Udall 

Senator Inhofe 

Senator Voinovich 

Senator Vitter 

Senator Barrasso 

Senator Alexander 


144 

146 

149 

150 
155 
159 
161 
162 
165 
167 
174 
180 
181 
184 

189 

194 

196 

198 

200 

201 

220 

222 

224 

225 


(III) 



IV 


Page 


Wellinghoff, Hon. Jon, Chairman, Federal Energy Regulatory Commission 228 

Prepared statement 230 

Responses to additional questions from: 

Senator Whitehouse 239 

Senator Udall 244 

ADDITIONAL MATERIAL 

Statement of Shaun Donovan, Secretary, Housing and Urban Development .... 269 

Statement of Gary F. Locke, Secretary of Commerce 274 

Testimony of Americans for Tax Reform 279 

Testimony of the Gas Technology Institute 283 

Report from the Center for American Progress: The Economic Benefits of 
Investing in Clean Energy 295 



LEGISLATIVE HEARING ON S. 1733, CLEAN 
ENERGY JOBS AND AMERICAN POWER ACT 


TUESDAY, OCTOBER 27, 2009 

U.S. Senate, 

Committee on Environment and Public Works, 

Washington, DC. 

The committee met, pursuant to notice, at 9:33 a.m. in room 406, 
Dirksen Senate Office Building, Hon. Barbara Boxer (chair of the 
committee) presiding. 

Present: Senators Boxer, Inhofe, Baucus, Lautenberg, Cardin, 
Sanders, Klobuchar, Whitehouse, Udall, Merkley, Gillibrand, Spec- 
ter, Voinovich, Vitter, Barrasso, Crapo, Alexander, and Bond. 

OPENING STATEMENT OF HON. BARBARA BOXER, 

U.S. SENATOR FROM THE STATE OF CALIFORNIA 

Senator Boxer. The committee will come to order. 

Before I start my 5-minute statement, everyone is going to have 
5 minutes, and we are doing the early bird rule. Senator Inhofe 
and I have agreed that if we are in the middle of a panel and a 
Senator arrives, we are going to just have them have to delay their 
opening statement so we can keep the flow of this going. We do ex- 
pect a very good attendance on both sides of the aisle. 

Senators, this is the first legislative hearing on S. 1733, the 
Clean Energy Jobs and American Power Act. Over the next 3 days, 
we will hear from 54 witnesses on 9 separate panels. Today I want 
to welcome my partner in writing this bill, Senator John Kerry, 
and our distinguished Obama administration witnesses. I greatly 
appreciate the President’s strong leadership on this issue. 

As promised, the Chairman’s mark was made public on Friday, 
and we released and posted EPA’s economic analysis of the bill. 
Committee rules provide that this document be circulated 3 days 
before the markup. We have done this at least 10 days before the 
markup. 

The Kerry-Boxer bill was based on the successful legislation in 
the House, the Waxman-Markey bill. Our bill is straightforward, as 
you can see on the chart. After outlining the findings, goals and 
targets, Division A lays out a series of authorizations, and Division 
B sets up the pollution reduction and investment program. 

EPA’s economic modeling found that the Kerry-Boxer bill will 
carry modest costs for America’s families, the overall impact being 
22 cents to 30 cents a day. Let’s talk about that for a minute. What 
will America’s families get for 30 cents a day? 

For 30 cents a day, we will put America in control of our own 
energy future and take a stand for home grown American energy, 

( 1 ) 



2 


rather than foreign oil from countries who don’t like us. For 30 
cents a day, we will protect our kids from dangerous pollution. For 
30 cents a day, we will send a signal that sparks billions of dollars 
of private investment in job creation. For 30 cents a day, we will 
be the world’s leader in clean energy technology. 

No climate bill has ever had this level of review, and the Obama 
administration stands behind this analysis. EPA spent 5 weeks 
analyzing the Waxman-Markey bill and another 2 weeks analyzing 
our version. Scientists in the Obama and Bush administrations and 
the National Academy of Sciences and the U.N. IPCC tell us that 
we have a narrow window of time in which to avert the ravages 
of global warming. They tell us about frequent and intense storms, 
wildfires in the west, heat waves across the Nation, increased 
droughts and flooding, threats to agriculture, global conflict, refu- 
gees and food shortages. 

In 2005, Hurricane Katrina took an estimated 1,700 lives, dis- 
placed a million people and cost well over $100 billion. Four years 
later, there is still suffering, and it will take billions to protect the 
coast in that region. Katrina provides a window into the kind of 
world we can expect if we fail to act. 

S. 1733 is our best insurance against a dangerous future. It is 
a responsible approach that sets attainable goals for gradual reduc- 
tions in carbon emissions. And it protects consumers, businesses 
and workers as we move toward clean energy. 

Let me give the warmest of thank yous to John Kerry and his 
staff, as well as to all majority members of this committee and 
their dedicated staffs. Their hard work is reflected in the Chair- 
man’s mark. 

I also want to thank Senator Carper for agreeing to take the 
helm of the Coal Working Group and for working with Senators on 
and off the committee to produce a positive outcome. Of course, I 
am disappointed that since John Warner retired, I don’t have a Re- 
publican partner on the committee. But I am appreciative for the 
productive conversations I have had with Senator Alexander about 
nuclear energy and for the wide ranging conversations and meet- 
ings I had with Senator Voinovich and his staff. 

We have been helped by environmental organizations, business 
and workers, religious experts, and I thank all of them. 

Ladies and gentlemen, here is where we are. Since the Supreme 
Court ruled that greenhouse gas pollution is covered under the 
Clean Air Act, the EPA must move forward to meet its responsibil- 
ities under the law. Our bill is the best way to proceed. It provides 
flexibility to businesses and powerful incentives to drive innova- 
tion. It helps consumers, workers, agriculture, transportation, en- 
ergy efficiency, wildlife. It helps cities and counties. It will launch 
an economic transformation, and it is deficit neutral, and may even 
have a surplus at the end of the day. 

Over the past four decades, this committee has been at the cen- 
ter of our Nation’s landmark environmental laws. They were writ- 
ten right here in this room. And those who sat in these chairs be- 
fore us never ran from a challenge. Global warming is our chal- 
lenge now, and I am very pleased that today is an important mile- 
stone on our road to action. 



3 


Members of the committee, I am going to call on Senator Inhofe. 
We are then going to hear from Senator Kerry, who must go to a 
committee hearing. And then we are going to go with the early bird 
rule and we will let all of you know your place on that. 

Senator Inhofe. 

OPENING STATEMENT OF HON. JAMES M. INHOFE, 

U.S. SENATOR FROM THE STATE OF OKLAHOMA 

Senator Inhofe. Thank you, Madam Chairman. We are here 
today to discuss a 923-page bill to fundamentally redesign our $14 
trillion economy. The bill is no doubt ambitious, but it is also ex- 
tremely costly. I won’t argue on the 30 cents a day; it is going to 
be very similar to the other efforts on cap-and-trade. It is going to 
be very, very expensive. 

I do want to congratulate you, Madam Chairman, because I 
watched your YouTube this morning. It is the first one I have seen. 
And the fact that you are using the term global warming again is — 
I appreciate that. People have been running from that term ever 
since we went out of that natural warming cycle about 9 years ago. 

Now, I won’t go into a lot of details on the request that we have 
had for a narrative on this thing from the Environmental Protec- 
tion Agency. I will have some questions for the Director. But I will 
let Senator Voinovich talk about that, since we have made these 
requests together over a period of time. 

Now, getting the analysis will help cut through a lot of the catch 
words. It will bring into focus the words of Representative John 
Dingell from Michigan, who said cap-and-trade is “a tax, and a 
great big one.” The Kerry-Boxer is a tax, and it will mean more 
economic pain and suffering and fewer jobs. 

When President Obama signed the $780 billion stimulus bill into 
law, he promised to save or create 3.5 million jobs. Since then, we 
have lost 3 million jobs. And the number keeps growing. Today the 
Administration will argue that cap-and-trade creates jobs. But it 
won’t. 

The Senate Energy Committee recently had a hearing about the 
cost of cap-and-trade. Here are some of the headlines that follow. 
The Washington Post: “Cap-and-Trade Will Slow the Economy, 
CBO Chief Says.” The Wall Street Journal: “Congressional Budget 
Chief Says Climate Bill Would Cost Jobs.” In the Guardian: “The 
Obama Climate Change Bill Would Hurt the U.S. Economy.” 

Let us recount a telling moment of that hearing. That is when 
Senator Sessions asked the Government witnesses — now, we have 
some overlap here, Ms. Jackson, you are one of them; they had the 
CBO, EPA, EIA and the CRS. He asked them whether anyone dis- 
agreed with the finding that the net effect of cap-and-trade would 
be a reduction in jobs. None did. Cap-and-trade supporters ac- 
knowledge job loss. They acknowledge the transition to a green 
economy. I am not sure what that means. The CBO director pro- 
vided some help. They said, transition will be painful. The victims 
of cap-and-trade can’t just move on and get new green jobs. The 
transition will mean leaving high paying jobs, moving away from 
hometowns and significant reductions in lifetime earnings. Now, 
that’s the CBO that stated that. 



4 


Now the majority will say that Kerry-Boxer has provisions to 
soften the transition. This raises two points. First, it is an implicit 
acknowledgment that the bill will destroy jobs. We have a provision 
in the bill that says we are going to try to have worker training, 
because people will be losing jobs. 

Second, I am sure the worker in the cement plant, when he loses 
his job, won’t find it very much consolation in the green welfare 
programs. Even the job killing impacts of cap-and-trade become 
clear. We now hear of a grand climate compromise. It entails great- 
er support for nuclear plants and more offshore and gas drilling. 
These are sensible policy goals. But why attach them to an energy 
tax that destroys jobs? And can you really try to drive fossil fuels 
into extinction on one hand and increase them on the other? It 
doesn’t work. 

This apparent compromise will also entail a massive expansion 
of Government bureaucracy. Senator Webb, a Democrat from Vir- 
ginia, compared it to “the old Soviet Union.” Consider that in 2003, 
the Climate Stewardship Act — this is interesting, because we have 
addressed this five different times in the Senate. That had 58 
pages. The next version in 2005 had 63 pages. The Lieberman-War- 
ner bill had 344 pages. And the Kerry-Boxer has 923 pages. Wax- 
man-Markey was 1,428 pages. 

So if we are talking about a deal, let’s focus on nuclear and oil 
and gas drilling; keep taxes and bureaucracy out of it. 

In his speech last week, President Obama dismissed opponents 
of cap-and-trade as cynical and pessimistic. I wonder if that applies 
to the 44 Democrats who voted against the Waxman-Markey bill. 
I think differently. They object to a policy that would destroy jobs 
and radically increase the size and scope of Government. 

I think if you just look at this in light of the Kyoto Treaty, then 
the 2003 bill, the 2005 bill, the 2008 bill, the one thing they have 
in common is cap-and-trade is very expensive. We are talking about 
somewhere between $300 billion and $400 billion a year. That is 
something the American people can’t tolerate, and I don’t believe 
they will. 

Thank you, Madam Chairman. 

[The prepared statement of Senator Inhofe follows:] 

Statement of Hon. James M. Inhofe, 

U.S. Senator from the State of Oklahoma 

We are here today to discuss a 923-page bill to fundamentally redesign our 
$14 trillion economy. The bill is no doubt ambitious, but it’s also extremely costly 
and ineffective. It is a massive new tax on consumers that will have virtually no 
effect on climate. 

This bill necessarily will raise the price of gasoline, electricity, food, and just 
about everything else. So we need a comprehensive economic analysis to understand 
the bill’s impacts. But we don’t have it. We have instead a 38-page narrative from 
the Environmental Protection Agency, the gist of which is, “This bill is a lot like 
Waxman-Markey, so go see our analysis of Waxman-Markey.” I did read the anal- 
ysis of Waxman-Markey. It’s flawed and incomplete. So what do we have here? Not 
much. 

While I have serious problems with EPA’s analysis of Waxman-Markey and its 
38-page “meta-analysis” of Kerry-Boxer, the latter was not entirely EPA’s fault. In 
its drive to ram S. 1733 through the legislative process, the majority didn’t provide 
EPA enough time to do a serious analysis. Why would the majority ram through 
a 923-page bill to overturn the existing economic order? The question answers itself. 
The public deserves more than just a 38-page description of how much S. 1733 re- 
sembles another energy tax passed by the House. 



5 


We were told EPA’s work contains “everything that you ever wanted to know.” 
Yet EPA glosses over and minimizes key issues. Moreover, EPA’s analysis of Wax- 
man-Markey lacks the real world assumptions that Senator Voinovich and I asked 
for in July. EPA rejected our request — we were told to go and find rigorous analysis 
somewhere else. At this point, I hope we can work with EPA to sort this out, or 
else our ability to have a markup will be in jeopardy. 

Getting the analysis will help us cut through the catchwords. It will bring into 
focus the words of Representative John Dingell (D-Mich.), who said cap-and-trade 
is “a tax, and a great big one.” Kerry-Boxer is a tax, and it will mean more economic 
pain and suffering and fewer jobs. 

When President Obama signed the $787 billion stimulus bill into law, he prom- 
ised to “save or create” 3.5 million jobs. Since then, we have lost 3 million jobs, and 
the number keeps growing. Today the Administration will argue that cap-and-trade 
creates jobs. With all due respect, there is a credibility problem here. 

The Senate Energy Committee recently had a hearing about the costs of cap-and- 
trade. Here are some of the headlines that followed — the Washington Post: “Cap- 
and-Trade Would Slow Economy, CBO Chief Says”; the Wall Street Journal: “Con- 
gressional Budget Chief Says Climate Bill Would Cost Jobs”; and the Guardian: 
“Obama climate change bill could hurt U.S. economy, panel told.” 

Let me recount a telling moment in that hearing. Senator Sessions asked the Gov- 
ernment witnesses — and they were CBO, EPA, EIA, and CRS — whether anyone dis- 
agreed with the finding that the net effect of cap-and-trade would be a reduction 
in jobs. None did. 

Cap-and-trade supporters acknowledge some job loss. They acknowledge a “transi- 
tion” to the green economy. I’m not sure what that means. The CBO director pro- 
vided some help. He said the “transition” will be painful — the victims of cap-and- 
trade can’t just move on and get a new green job. The “transition” will mean leaving 
high paying jobs, moving away from hometowns, and “significant reductions in life- 
time earnings.” 

Now the majority will say Kerry-Boxer has provisions to soften the “transition.” 
This raises two points: first, it’s an implicit acknowledgement that the bill will de- 
stroy jobs; and second, I’m sure the worker at a cement plant, when he loses his 
job, won’t find much consolation in green welfare programs. 

Even as the job killing impacts of cap-and-trade become clear, we now hear of a 
grand climate compromise. It entails greater support for new nuclear power plants 
and more offshore oil and gas drilling. These are sensible policy goals, but why at- 
tach them to an energy tax that destroys jobs? And can you really try to drive fossil 
fuels to extinction on the one hand and increase them on the other? 

This apparent compromise will also entail a massive expansion of Government bu- 
reaucracy. Senator Webb (D-Va.) compared it to “the old Soviet Union.” Consider 
that in 2003, the Climate Stewardship Act was 58 pages; the updated version in 
2005 was 63 pages; the Lieberman- Warner bill in 2008 was 344 pages; in 2009, 
Kerry-Boxer is 923 pages and Waxman-Markey is 1,428 pages. So if we’re talking 
about a deal, let’s focus on nuclear and oil and gas drilling; keep taxes and bureauc- 
racy out of it. 

In his speech last week, President Obama dismissed opponents of cap-and-trade 
as “cynical” and “pessimistic.” I wonder if that applies to the 44 Democrats who 
voted against Waxman-Markey. I think differently: they object to a policy that will 
destroy jobs and radically increase the size and scope of Government. 

This is about prudence and common sense. And it’s about a fundamental dif- 
ference in vision for the country. We have the approach to tax and destroy versus 
the approach to expand and create. The American people prefer the latter. And so 
do I. Thank you. 

Senator Boxer. Thank you very much, Senator. 

Our first witness is the author of the Kerry-Boxer bill, and we 
are very happy you could be here, Senator. We know you have 
many other obligations, but we will be very interested in hearing 
what you have to say in as long as you need to take to say it. 

OPENING STATEMENT OF HON. JOHN KERRY, 

U.S. SENATOR FROM THE STATE OF MASSACHUSETTS 

Senator Kerry. Well, Madam Chairman, thank you very, very 
much. Thanks for the privilege of appearing before this committee, 
Senator Inhofe, and all the members of the committee, many of 



6 


whom I have met with individuals talking about this, and all of 
whom I really want to sit down with and talk about this. Because 
we need to find the path forward. 

I listened carefully, Senator Inhofe, to your comments, and I will 
address some of them as I go along, and I would like to. 

But I want to thank Chairman Boxer, first of all, for her pas- 
sionate, determined, inspirational leadership on this issue. She has 
been a gracious and invaluable collaborator in this effort. I am per- 
sonally grateful to her, as are many people, for her effort to push 
this along. And you may disagree with her, but she is determined 
to try to put America in the right place on this issue. And I hope 
in the course of these hearings we will all understand how we are 
doing that. 

Today we begin the formal legislative process to lead the world 
in rolling back the urgent threat of climate change. I believe, and 
the vast majority, overwhelming numbers of scientists and peer re- 
viewed studies across the globe, leaders of countries across the 
globe, presidents, prime ministers, finance ministers, environment 
ministers, all across the planet, have all determined that we need 
to move forward to deal with climate change, and that in doing so, 
Senator Inhofe, we will actually improve every sector of our energy 
economy, from coal to nuclear, to wind and solar. We will take cru- 
cial strides toward energy independence, which strengthens Amer- 
ica’s national security. And critically, we will create millions of 
jobs, new jobs and entire new industries will stay in the United 
States of America. 

We will create jobs that cannot be exported, because we will cre- 
ate our energy here at home, which makes America stronger and 
which in fact strengthens our competitive posture. It is no surprise 
that somebody like Jim Rogers, who runs a multi-billion dollar 
company, a CEO of a Fortune 500 company, Duke Energy, is one 
of the leaders, he is the chairman of America’s Competitiveness 
Council. He is responsible in that capacity for creating jobs and for 
making America more competitive. And he is one of the leaders in 
saying that we need to set a fixed target of pollution reduction in 
order to challenge our economy and in order to grow our economy 
for the future and remain competitive. 

Now, we are not going to do these things if we don’t pass an ag- 
gressive, forward looking climate and energy combined piece of leg- 
islation. Let me share with you very quickly — I am not going to 
spend much time on this, but I do want to share with you why 
there is an urgency to this. Senator Inhofe, you just talked about 
the costs of doing some of this. Are there some costs? Yes, sir. 
There are some costs. But almost every study that looks at the 
costs does not factor in the impact of energy efficiency or the im- 
pact of new technology or what the impact is of becoming more en- 
ergy independent. 

And most importantly, they none of them factor in the cost of 
doing nothing. That is far more expensive for your folks in Okla- 
homa or for your folks in any of the other States represented on 
this panel. 

So we need to be honest and realistic as we assess how we in 
fact best protect the interests of our country. There is a reason that 
the leaders of the G20 in Italy recently affirmed that we cannot let 



7 


the temperature of the planet rise more than 2 degree Centigrade. 
And the reason is that all of our best scientists in peer-reviewed 
studies tell us that if it goes over 2 degrees Centigrade, we risk cat- 
astrophic changes to the climate, to our crops, to our water supply, 
to the ocean currents, to the ecosystems that we depend on. 

And I will say to you, the science, Senators, is more definitive 
than ever. The science is screaming at us to take action. A few 
years ago, the scientists told us that the Arctic ice would be melted 
perhaps by 2030. It is now going to be summer, ice-free, by 2013. 
And already Russia has gone ahead and planted a flag underneath 
the ocean to say, we have the right to take these minerals out of 
here, because they have an ability, because it is ice-free, to be able 
to go up there and do that. 

There are huge conflicts that will come out of what we are allow- 
ing to happen without addressing it adequately. 

In the 21 years that we have had hearings on this in the Senate, 
A1 Gore and I shared the privilege of having the first hearings on 
this in 1988, when Jim Hanson first told us that it was happening. 
And the evidence is now clearer than ever before that a voluntary 
approach just doesn’t work. 

We went down to Rio with President George Herbert Walker 
Bush, a Republican Administration, with the efforts of John 
Sununu and Bill Reilly, put in place a voluntary framework for a 
global effort to reduce emissions. Because in 1992, we determined 
that we needed to do this. 

What happened? In every country in the world, emissions have 
gone up faster than is allowable to meet the 2 degrees Centigrade 
standard. And it is because voluntary doesn’t work. Everybody is 
waiting for the next person to move. Nobody wants to sort of curb 
in their economy, as you have said, Senator Inhofe, because they 
are afraid they will be non-competitive. 

But the consequences of that are really traumatic. The best ex- 
perts tell us that the last 10 years have been the hottest decade 
on record, since we have kept records of temperature. Our oceans 
have become 30 percent more acidic. And that has a profound im- 
pact on the spawning grounds and on the krill that feed the whales 
and on the cycle of the oceans. 

Pine beetles have destroyed 6.5 million acres of forest land in the 
western States. I recently listened to Governor Ritter from Colo- 
rado come in and tell us how in Colorado alone they have lost a 
million acres because beetles that used to die off because it got cold 
now don’t die off. So the cycle has changed. 

A hundred and eighty Alaskan villages are losing permafrost, lit- 
erally melting the ground beneath their homes and feet. The citi- 
zens of Newtok, Alaska — ask Lisa Murkowski, ask Mark Begich, 
they will tell you what is happening in Alaska. The citizens of 
Newtok, Alaska, recently voted to move their village inland be- 
cause of the rise of sea level and the lack of sea ice in the winter. 
That is at a cost of some $400 million. 

The fact is that there is enormous melt-off of our glaciers in the 
western part of our country. Water supply is already at issue. The 
principal supply to American agriculture is at issue. And the rivers 
around the world are at issue. 



8 


The Chinese have taken enormous note of this. I was in China 
2 months ago. They are fearful that the great rivers of China, the 
Yangtze, the Yellow River, are going to dry up, the Mekong. And 
that affects a billion people and the agriculture of their nation. 

Southwestern States in our country are projected now to experi- 
ence permanent drought conditions by mid-century. And the area 
that is burned by western wildfires is projected to nearly triple. 
The fact is that the Siberian ice shelf study, which just came out 
this last year, shows that because the permafrost lid is melting, be- 
cause the oceans are getting warmer, we have columns of methane 
rising now in the ocean. And if you were to stand at the place 
where those bubbles of methane actually burst out into the open 
air and light a match, it would ignite. 

Methane is 20 times more dangerous and damaging than carbon 
dioxide, than CCB. So we have an enormous challenge facing us in 
order to be able to do this. And all of the scientists who, in these 
peer-reviewed studies are telling us that these changes may well 
be irreversible for a thousand years. 

An organization as innocent as the Audubon Society has reported 
that there is now a 100-mile swath wide belt in the United States 
where there is a transformation in what plants and flowers and 
bushes and shrubs and so forth will grow in America. There is al- 
ready a migration that has been predicted by many scientists. So 
that is why, Madam Chairman, the countries of the world, and 
there are many other impacts, I am not going to go into all of them 
here now, but that is why the countries of the world, including 
India, China and the United States, have agreed to limit this glob- 
al rise to 2 degrees Celsius. 

Now, why is that so critical? Because the current warming level 
of Earth, scientists tell us, is already at about .8 degrees since the 
Industrial Revolution. And what is already up there in the atmos- 
phere, which we can’t get out, has a half-life, that is, it will con- 
tinue to do the damage it is doing today for another thousand years 
perhaps. 

That means that what we have put up there that has done the 
damage that has raised the temperature the .8 degrees is guaran- 
teed to raise it at least another .8 degrees. That means we are 
going to be at almost certainly 1.6 degrees Centigrade before we 
even do anything, Madam Chairman. And that gives us a cushion 
of about .4 degrees before you reach the 2 degrees, which they say 
could result in catastrophe. 

Now, I can’t tell you that it absolutely is. I can’t sit here and tell 
you with certainty that I know the answer to that. But I can tell 
you as a public person that if the best scientific minds we have in 
the world in peer-reviewed studies are all in unity telling us this 
is the potential consequence, I think as public people we have a re- 
sponsibility to try to respond. And if we are wrong, we will have 
created more jobs, become more energy independent, moved to the 
point of having better health in America and increased the security 
of the United States. If we are right and someone else is wrong and 
we haven’t done anything, the results are obviously absolutely cat- 
astrophic. That is the balance here. 

Now, I believe there is a workable mechanism to get this done, 
Madam Chairman. If you look at our legislation, we ask America 



9 


to do our part, and we have to work, obviously, to convince others 
to do theirs. Let me make it clear that by putting this target in 
place, I believe we will attract private investment and spur a new 
industrial revolution in America. We had the great movement of 
wealth, if you will, in the 1990s, when we moved to the tech econ- 
omy. That is an economy that was about a trillion dollars large, 
and it had about a billion users. What we are looking at now is an 
economy where most estimates say it is a $6 trillion economy with 
6 billion users. Energy economy is the mother of all economies. And 
right now, the United States of America is watching China, watch- 
ing Germany, watching India and other countries race to this mar- 
ketplace at the expense of the jobs of our Nation. 

I believe that the pollution reduction measures that are in this 
bill are very tightly focused for maximum impact. And I want to 
emphasize that some people argue the effect on the economy. Sen- 
ator Inhofe, you have raised this, U.S. unemployment, et cetera, 
why kill more jobs. I have a report here, it is a compilation of re- 
ports, different reports by the Center for American Progress, by the 
U.S. Conference of Mayors, by the American Council for an Energy 
Efficient Economy, by the College of Natural Resources at the Uni- 
versity of California Berkeley. Every single one of these analyses, 
we have done them for each of your States, for every one of you 
on this committee, and we will do them for everybody on the Sen- 
ate. They show net creation of jobs in every one of your States. 
They show net increase of investment and money moving into your 
States. 

In Idaho, for instance, 7,000 to 14,000 jobs net, according to the 
University of California Berkeley. According to the American Coun- 
cil for Energy, by 2020, 200,200 jobs created from energy efficient 
measures, a savings of $226, by 2030, 2,900 jobs created, $700 mil- 
lion, according to the Center for American Progress, $700 million 
will come into Idaho alone, creating 8,000 jobs. There is a variation 
here. 

But there isn’t one of these that doesn’t suggest an increase of 
jobs, an increase of investment. We are going to create the equiva- 
lent of 5 or 10 Google equivalents that are going to drive the econ- 
omy of our country. That is why people like DuPont, Dow Chem- 
ical, American Power, the Florida Power and Light, Duke Energy, 
Cisco Systems, some of the largest companies in America are all 
saying, do this. Give us a market certainty on the price of carbon. 
Give us a system where you will help us to transition. 

Now, I want to just say a word about that if I can. Senator 
Inhofe, this is not economy-wide. Only 7,500 entities in the United 
States of America are covered by this legislation. Ninety-eight per- 
cent of America’s small business is exempt. Agriculture is exempt. 
Transportation is exempt. Small business is exempt. So you may 
say to yourself, well, what do you do with that other 2 percent? 
Well, the fact is that that 2 percent represents three-quarters of 
America’s greenhouse gas emissions. We are only talking about cre- 
ating a marketplace between entities that pollute more than 25,000 
tons of carbon dioxide a year. That is the equivalent of the output 
of 2,300 homes, or 4,600 automobiles, or 130 railway cars full of 
coal. 



10 


It exempts office buildings, apartment, homes, malls, stadiums, 
small firms. We have to be able to find it in our capacity to reduce 
pollution from 2 percent of America’s businesses that represent 75 
percent of America’s pollution. 

Now, let me say another reason we need to do this. Climate 
change and our dependence on foreign oil are a significant threat 
to our national security. There is nothing conservative about re- 
maining indebted to hostile regimes for our energy. Doubters often 
talk about the cost of taking action. But I have to tell you, every 
analysis shows that the cost of not taking action is more expensive. 
If we think that it is good for America to send $400 billion a year 
to other countries so we can put stuff up into the atmosphere that 
costs us even more to fix, we are crazy. We would be far better off 
moving more rapidly toward the creation of that energy here at 
home. 

Eleven former admirals and high ranking generals issued a sem- 
inal report warning that climate change is a “threat multiplier” 
with the potential to create sustained natural and humanitarian 
disasters on a scale far beyond those we see today. And John War- 
ner, who will testify, our former colleague, there is no greater secu- 
rity advocate for the United States, speaks eloquently about this, 
as have others. General Zinni, former CentCom commander, said 
this is going to cost us lives. It is going to cost us the deployment 
of the American military because of the crises that will ensue as 
a consequence of allowing this to go unaddressed. 

It threatens to bring more famine and drought, worse pandemics, 
more natural disasters, more resource scarcity and human dis- 
placement on a staggering scale. And the result is, we risk fanning 
the flames of failed stateism. Madam Chairman, you can see this 
today in Africa. Right now, there is fighting between tribes in the 
Sudan because they have been forced to move because of the lack 
of water and the desertification that has taken place. So they move 
into another area, fight for water, fight for location, and the result 
is conflict and the destabilization of a whole region. 

In an interconnected world, that threatens all of us. I think you 
will hear this from Senator Warner. Let me quote Anthony Zinni 
directly. He said “We will pay the price later in military terms. 
And that will involve human lives. There will be a human toll.” 

Fourth issue, Madam Chairman. America’s leadership is signifi- 
cantly on the line here. Brazil, Mexico, South Korea, the European 
community, Japan, Australia, have all committed to significant 
emissions reductions. Last month, Chinese President Hu Jintao 
pledged to reduce China’s emissions below projected levels. 

India is working on its own domestic legislation to reduce pollu- 
tion. It is a myth that China and India have been sitting on the 
sidelines. I was just in China. Let me tell you, they have tripled 
their wind goals and targets. They have determined to be the 
world’s leader in electric automobiles. They are now the world’s 
leader in solar production and in battery storage, et cetera. They 
have moved to put transportation restrictions on their automobiles, 
more strict than the ones that we have in this country. And they 
have put them in place faster. And the fact is that they are coming 
to the negotiating table with an agreement that they will be a con- 
structive and positive force at Copenhagen. 



11 


Fifth, the economic opportunities that stare us in the face are 
enormous. There are millions of jobs, major improvements to every 
sector of our economy. But I am telling you, Madam Chairman, if 
we hang back, you can tell what is happening. Today, of the five 
top 30 companies of the world in solar, wind and advanced bat- 
teries, only five are based in the United States of America. We in- 
vented solar. We invented wind. And we pulled back and we al- 
lowed those technologies to be developed and taken from laboratory 
to shelf by other countries. 

Germany now has created 280,000 new renewable energy jobs 
and actually employs more people in its renewable energy sector 
than in the legendary German auto industry. That is the future. 
Wind energy alone can bring tremendous benefits. 

I will give you an example, the State of North Dakota. I have 
talked to Byron Dorgan about this. The State of North Dakota is 
ranked by the Wind Power Energy Association as No. 1 wind po- 
tential in the United States of America. It is currently number 24 
in terms of its production. Though its regular economy has grown 
by about 2 percent over the course of the last few years, its renew- 
able energy sector has grown by about 19 percent. That represents 
the kind of growth in each of your States, if you will take a look 
at the analysis of these studies. 

In Montana, there is a plan to build a $25 million wind turbine 
manufacturing plant in Butte with scientists who are trained at 
Montana Tech. In Pennsylvania, the wind turbine manufacturer, 
Gamesa, has invested over $175 million and put over 1,100 Penn- 
sylvanians to work. In Norman, Oklahoma, there is a 30-year-old 
family owned company that has become the third largest manufac- 
turer of small wind turbines in the world, with installations in all 
50 States and over 100 countries. That business can grow and com- 
pete with the Chinese. 

And that is just a few examples from what comes from a clean 
energy sector. 

Now, I understand there is some concern in the Senate that the 
process is moving too quickly. I will put aside my own feelings that 
a process that began over 20 years ago is actually moving too 
quickly. That could happen only by Senate standards, frankly. 

But within the constraints of the Senate, what is happening here 
in this committee is just one step. There are five other committees. 
They are all working. The Energy Committee has done part. The 
Foreign Relations Committee, the Agriculture Committee, et 
cetera. By the time this gets to the floor, a comprehensive energy 
and climate bill will include the inputs from six Senate committees. 
And the foundation of all that work has to come through this com- 
mittee first. 

I will just close. You have been very generous in allowing me the 
time here. Let me just close and say, OK, why put a target that 
is mandatory on the reduction of emissions? Some people argue it 
would be cleaner to have a carbon tax. Well, it might be cleaner. 
But I don’t believe that you will change behavior with a tax at the 
level that you might under some miracle be able to pass in the Sen- 
ate. I doubt that there are enough people here who would vote for 
a tax of any kind. 



12 


And therefore, to say you are going to change behavior, you are 
going to have to have a tax that is high enough to force companies 
to be able to reduce emissions, because they are going to say, 
whoops, this is too costly, we have to go find a different way to be- 
have, and we are going to invest in the different technologies. 

So I don’t think this is going to work, which is why companies 
that are big companies have decided to support the idea of a tar- 
geted pollution reduction, mandatory reduction. Because it allows 
them, if they have been good performers and they have reduced 
their emissions, they can take the difference between where they 
are at and the emissions target and sell it to another company that 
can’t yet meet the target or wants to be able to continue its current 
practices. 

That is the marketplace, folks. That is classic American cap- 
italism. It is classic marketplace capacity. There isn’t a dime of 
public dollar in that. There is not one tax dollar in that. It is not 
a Government-run program. It is a private company deciding that 
it wants to behave this way or that way. And depending which way 
it decides to behave, it gets an asset that is worth something, or 
it sells the asset; it can buy it and continue to pollute for a period 
of time while it transitions to a place where they are willing to in- 
vest to meet the target. 

So I would just say to all of my colleagues, I respect the passion 
on this committee. I am happy to answer any questions. 

I think we have to believe in America’s technology ability. I do. 
We saw this in 1990 with the Clean Air Act. 

I will just end on this note. I sat in that room and negotiated 
with John Sununu and President Bush and Bill Reilly. And we 
heard the same arguments. Everybody said it is going to cost $8 
billion, and you are going to bankrupt us, and you will make us 
noncompetitive, and we can’t do it. The environment community 
came in and said, no, no, no, that is just those studies that sort 
of exaggerate things. It is going to cost $4 billion, and it will take 
4 years, and we can do it. 

To the credit of George Herbert Walker Bush, he decided to do 
it. And guess what? We achieved our goals within about a year and 
a half to 2 years at a cost of about a billion and a half to $2 billion. 
Why? Because nobody has the ability to predict what happens 
when you set a target and American ingenuity and genius begins 
to move to create the technologies and find the solutions to meet 
that target. 

I believe that is exactly what is going to happen here if we will 
have the courage to set the goal and lead the world. And if we do 
that, I believe we are going to, in 10, 15 years, not only see that 
we have met the challenge of climate change, but we have im- 
proved the health in America, we have created more jobs, we have 
strengthened American security, we have met our environment re- 
sponsibility, and we are more energy independent. Tell me a public 
policy choice where you get five benefits for one choice. There are 
very, very few of them. 

Thank you, Madam Chairman. 

[The prepared statement of Senator Kerry follows:] 



13 


Statement of Hon. John Kerry, 

U.S. Senator from the State of Massachusetts 

Thank you, Chairman Boxer and Senator Inhofe, for the opportunity to discuss 
a set of issues as important as any we face. Chairman Boxer has been a passionate, 
determined, and inspirational leader on environmental issues for as long as I’ve 
known her — and an invaluable and gracious collaborator on this bill. 

Today, we have an opportunity to lead the world in rolling back the urgent threat 
of climate change. We can protect the air our children breathe and the water they 
drink. We can improve every sector of our energy economy, from coal and nuclear 
to wind and solar; take crucial strides toward energy independence; and create mil- 
lions of new jobs and entire new industries that will stay in America. 

But we can’t and we won’t do those things if we don’t pass aggressive, forward 
looking climate and energy legislation. And let me tell you why. 

First, the science is more definitive than ever and more troubling than ever, 
and — 21 years since first Senate hearings on climate change back in 1988 — the evi- 
dence is now clearer than ever before that a voluntary approach won’t get the job 
done. 

NASA scientists — the best experts we have — tell us that the last 10 years have 
been the hottest decade on record. Our oceans have become 30 percent more acidic. 
Pine beetles have destroyed 6.5 million acres of forest land in the western States. 
180 Alaskan villages are losing permafrost — literally melting the ground beneath 
their homes and their feet. Southwestern States are projected to experience perma- 
nent drought conditions by mid-century, and the area burned by western wildfires 
is projected to nearly triple. And worst of all, scientists say these changes may well 
be irreversible for 1,000 years. 

That’s why the countries of the world — including India, China and the United 
States — have agreed to limit the global rise in temperature to 2 degrees Celsius. 

Second, there is a workable mechanism to get this done. For America to do our 
part and convince others to do theirs, we need to set a mandatory target to reduce 
the carbon pollution that causes climate change — and then we need to drive private 
investment to meet those goals as affordably and efficiently as possible. 

The pollution reduction measures in this bill are tightly focused for maximum im- 
pact: Only companies emitting 25,000 tons of carbon each year are covered. These 
are big polluters — with an output equivalent to 2,300 homes, 4,600 automobiles, or 
130 railway cars full of coal. Even as it exempts office buildings, apartments, homes, 
malls and stadiums, farmers, small firms, and over 98 percent of America’s busi- 
nesses, the bill still covers three-quarters of America’s carbon pollution. So this is 
a smart way to start the ball rolling and transition America to clean energy. 

Third, climate change and our dependence on foreign oil are a threat to our na- 
tional security. There’s nothing conservative about remaining indebted to hostile re- 
gimes for our energy. Doubters often talk about the costs of taking action. Let me 
tell you, the costs of inaction are larger, and frankly they become more staggering 
by the day. 

Eleven former admirals and high ranking generals issued a seminal report warn- 
ing that climate change is a “threat multiplier” with “the potential to create sus- 
tained natural and humanitarian disasters on a scale far beyond those we see 
today.” Why? Because climate change injects a major new source of chaos, tension, 
and human insecurity into an already volatile world. It threatens to bring more 
famine and drought, worse pandemics, more natural disasters, more resource scar- 
city, and human displacement on a staggering scale. We risk fanning the flames of 
failed stateism and offering glaring opportunities to the worst actors in our inter- 
national system. In an interconnected world, that endangers all of us. Senator War- 
ner, a friend to many here, will speak eloquently to the national security case for 
preventing catastrophic climate change. General Anthony Zinni, former commander 
of our forces in the Middle East, warned that without action — and I quote — “we will 
pay the price later in military terms. And that will involve human lives. There will 
be a human toll.” 

Fourth, America’s leadership is also on the line. While the Senate stands still, the 
world is racing ahead: Japan, Mexico, Brazil, South Korea, the EU, and Australia 
have committed to significant emissions cuts. Last month, Chinese President Hu 
Jintao pledged to reduce China’s emissions below projected levels. India, for its part, 
is working on its own domestic legislation to reduce carbon pollution. So it is a myth 
that China and India have been sitting on the sidelines. The truth is, they’ve been 
coming to the negotiating table with concrete actions and commitments, and they’re 
waiting for us to do the same! 

Fifth, and as important as anything, if we act, the economic opportunities will be 
enormous: millions of new jobs and major improvements in every sector of the en- 



14 


ergy economy. But if we hang back, we know what will happen, because it is hap- 
pening already. Today, only 5 of the top 30 companies in the world in solar, wind 
and advanced batteries are based in the United States. We invented solar and wind 
technology, but we let others master it first, and now Germany has created 280,000 
renewable energy jobs and actually employs more people in its renewable energy 
sector than in the legendary German auto industry. 

State by State, a smart energy bill can deliver growth and jobs. Wind energy 
alone can bring tremendous economic benefits. In Montana, there’s a plan to build 
a $25 million wind turbine manufacturing plant in Butte, with scientists trained at 
Montana Tech. In Pennsylvania, the wind turbine manufacturer Gamesa has in- 
vested over $175 million and put over 1,100 Pennsylvanians to work. In Norman, 
Oklahoma, there’s a 30-year-old family owned company that has become the third 
largest manufacturer of small wind turbines in the world, with installations in all 
50 States and over 100 countries. And that’s just a few examples from one clean 
energy sector! I understand that there is some concern inside the Senate that this 
process is moving too quickly. I’ll put aside my own feeling that a process that 
began over 20 years ago is quick only by Senate standards. But within the con- 
straints of the Senate, we know this is only one step — albeit a crucial one — in a 
broad, comprehensive, Senate-wide effort. By the time it gets to the floor, a com- 
prehensive energy and climate bill will include inputs from six Senate committees. 
But the foundation for all of that work — a cap on carbon pollution — must come 
through this committee first. 

I respect that there is a lot of passion on all sides of these issues. People are wor- 
ried about jobs, about keeping energy affordable, and about economic competitive- 
ness. These are real and legitimate subjects of concern. And we must address them 
as thoroughly and honestly as we can together. I am confident that the more people 
understand about what we are trying to accomplish here — not the politics, but the 
substance — the more they will be willing to join us. So to sum up, the science is 
more urgent than ever. We have a workable mechanism to address the challenge 
in a way that is affordable and efficient. Our security, our leadership, and our eco- 
nomic future are at stake. 

And frankly, this body’s leadership is at stake, too. America and the world are 
waiting to hear from the U.S. Senate. World leaders are waiting for a signal that 
we are serious before they make commitments at the Copenhagen climate talks 6 
weeks from now. CEOs and business leaders are waiting for a signal from Wash- 
ington that will give them market certainty. 

Failure to act comes with another cost. If Congress does not pass legislation deal- 
ing with climate change, the Administration will use the Environmental Protection 
Agency to impose new regulations. Imposed regulations are likely to be tougher, and 
they certainly will not include the job protections and investment incentives we are 
proposing. Killing a Senate bill is not success; indeed, given the threat of agency 
regulation, those who have been content to make the legislative process grind to a 
halt might well later be demanding that Congress secure the kinds of incentives and 
investments we can and should simply pass today. 

For all these reasons it’s time for the Senate to lead — and with an eye toward 
our best traditions find common ground to move the country forward, keep our coun- 
try safe and strong, and lay the groundwork for decades of economic growth to come. 

Senator Boxer. Thank you, Senator Kerry. We so appreciate 
your expanding on why it is so important that we act. We thank 
you very much. 

I want to say to the committee, we are going to now go to open- 
ing statements. And we are going to be tough on the clock. I do 
have a request from Senator Baucus, who is late for a health care 
meeting, he would like to go first, if it is OK with my side. He said 
he only needs 3 minutes. So if there is no objection, I think every- 
one knows what is on your shoulders. So go ahead. 

OPENING STATEMENT OF HON. MAX BAUCUS, 

U.S. SENATOR FROM THE STATE OF MONTANA 

Senator Baucus. Thank you. I am keeping Director Orszag and 
Director Summers waiting in my office for 12 minutes. I deeply 
apologize, I will be very, very brief, and I will thank the indulgence 
of my colleagues. 



15 


First, I want to thank the Senator from Massachusetts. Senator 
Kerry has worked so hard on climate change, and clearly, his state- 
ment today shows how hard he has worked. He has done a great 
job. 

Madam Chairman, I want to thank you and thank Ranking 
Member Inhofe and our witnesses for being here today to discuss 
climate change. The legislation before us today is about protecting 
our outdoor heritage. We, I think all of us in the country, certainly 
those of us in Congress, when we leave this place, have a moral 
obligation to leave it in as good a shape or better shape than we 
found it. If uncontrolled, the impacts of climate change put this fu- 
ture at risk. 

The legislation before us today is about our economy. Montana, 
with our resource-based agriculture and tourism economies, cannot 
afford the unmitigated impacts of climate change. But we also can- 
not afford the unmitigated effects of climate change legislation. 
That is why I support passing common sense climate legislation 
that reduces greenhouse gas emissions while protecting our econ- 
omy. And the key word in that sentence is passing. 

I have some concerns about the overall direction of the bill before 
us today and whether it will lead us closer to or further away from 
passing climate change legislation. For example, I have serious res- 
ervations about the depth of the mid-term reduction target in the 
bill and the lack of preemption of the Clean Air Act’s authority to 
regulate greenhouse gas emissions. 

We cannot afford a first step that takes us further away from an 
achievable consensus on common sense climate change. We could 
build that consensus here in this committee. If we don’t, we risk 
wasting another month, another year, another Congress without 
taking a step forward into our future. 

I look forward to working with my colleagues on both sides of the 
aisle in this committee prior to the markup to address these issues 
and other key issues. I think it is very important that we do. 

Thank you, Madam Chairman. 

Senator Boxer. Thank you very much, Senator. 

Senator Alexander. 

OPENING STATEMENT OF HON. LAMAR ALEXANDER, 

U.S. SENATOR FROM THE STATE OF TENNESSEE 

Senator Alexander. Madam Chairman, thank you. 

I have no problem with the problem. My problem is with the so- 
lution. Eleven academies in industrialized countries say that cli- 
mate change is real, humans have caused most of the recent warm- 
ing. If fire chiefs of the same reputation told me my house was 
about to burn down, I would buy some fire insurance. 

But I would buy insurance that worked, and I wouldn’t buy in- 
surance so expensive that I couldn’t pay my mortgage or my hos- 
pital bill. That is my problem with this solution. It is going to make 
it harder for Americans to support their families. When it is all 
wrapped up and put together, it is going to be an economy-wide 
cap-and-trade, narrowly defined energy mandates, taxes, mandates 
and surprises. 

My colleagues, I am sure, are going to point out the surprises 
and the things we know. At a time of 10 percent unemployment, 



16 


utility bills going up, manufacturing jobs going overseas, a new 
slush fund in Washington with corporations with their hands out. 
It will be ineffective against fuel, which produces 30 percent of car- 
bon, because raising the price of gasoline doesn’t change human be- 
havior enough to change to reduce much carbon. 

If it is like Waxman-Markey, which EPA says it mostly is, then 
according to President Obama’s budget director, it is the largest 
corporate welfare program in history. According to CBO, it could 
reduce our gross domestic product by 3 and a half percent. Brook- 
ings says $300 billion a year, et cetera. 

So the strategy is, taxes, expensive energy and mandates, and 
make 20 percent of our electricity from subsidized windmills. But 
our dream should be cheap energy, to create jobs and eliminate 
hardship. So before we embark deliberately on a program to send 
jobs overseas and make it hard to pay our bills, why don’t we try 
a cheap energy strategy for clean energy? 

One, build 100 new nuclear plants in 20 years. They are 70 per- 
cent of our carbon-free energy; wind is 4 percent of our carbon-free 
energy. Two, electrify half our cars and trucks in 20 years. We can 
do that without building one new power plant if we plug them in 
at night. Three, explore offshore for natural gas. It is low carbon. 
Four, launch four mini-Manhattan projects like the one we had in 
World War II. Secretary Chu calls them innovation hubs, to find 
ways to recapture carbon from coal plants, make solar costs com- 
petitive, make electric batteries better, recycle used nuclear fuel. 

Instead, we have this plan for a national energy tax plus a na- 
tional windmill policy. This windmill policy would require building 

186.000 50-story wind turbines that would cover West Virginia, 

19.000 new transmission lines, $170 billion in taxpayer subsidies, 
ridge tops and coastlines and treasured landscapes turned into 
junkyards in the sky, kill a million birds a year. And it still would 
work only a third of the time, and you would have to build natural 
gas or nuclear or coal plants to back them up. 

What happened to nuclear? If we are going to war, and we had 
invented a nuclear navy 60 years ago, and it was doing exactly 
what we wanted, and thousands of sailors had lived safely on top 
of the reactors for 60 years, would we stop building nuclear ships 
and start building sailboats? 

Building nuclear power plants, 100 of them in 20 years, is the 
fastest, cheapest, reliable way to reduce carbon from utilities, just 
as electrifying half our cars is the fastest way to reduce foreign oil. 
China is building 132 nuclear plants, France is 80 percent nuclear, 
it has the lowest electric rates, among the lowest carbon emission 
rates in Europe. Japan, Taiwan, India, the United Arab Republic, 
Russia, all building nuclear plants. We invented it, and we haven’t 
started a new one in 30 years. 

If we went full speed ahead, by 2030, nuclear would produce 40 
percent of our electricity, natural gas 25 percent, hydroelectric 10, 
wind and solar 5. We would come close to meeting the Kyoto car- 
bon emissions by 2030 just with nuclear plants and electric cars. 
And presidential leadership could do it, remove barriers, provide 
incentives, fund the Manhattan Projects. With presidential leader- 
ship, we could build 100 nuclear plants, electrify half our cars and 
trucks, find new low carbon natural gas, launch the Manhattan 



17 


Projects, meet our clean energy goals, all without a national energy 
tax and without running jobs overseas. 

All 40 Republican Senators agree with this four-part agenda. So 
do many Democrats. Then why are we pursuing a high cost na- 
tional energy tax and subsidizing 186,000 windmills, when we 
could agree on a low cost clean energy plan that would create good 
jobs and low electric fuel bills? 

Thank you. 

Senator Boxer. Thank you, Senator. 

Senator Specter. Oh, I’m so sorry, Senator Klobuchar and then 
Senator Specter. Under the early bird rule. 

OPENING STATEMENT OF HON. AMY KLOBUCHAR, 

U.S. SENATOR FROM THE STATE OF MINNESOTA 

Senator Klobuchar. Thank you. 

Senator Boxer, I first want to thank you for moving proactively 
on this issue that is so important to our Nation’s economy, security 
and environment. Your leadership on this issue is well recognized. 
And I appreciate your working with me and our staff on this bill 
to include provisions to better protect the middle class, to expand 
agriculture allocations and to work to provide a stable business en- 
vironment for companies that make energy efficient technology. 

I also appreciate how both you and Senator Kerry have worked 
across the aisle and people like Lindsey Graham and others. I hope 
that ultimately we will have a bi-partisan bill here. 

I look forward to working with you, Senator Boxer, on key issues 
including ensuring that the bill further protects middle class fami- 
lies as well as businesses and manufacturers from fluctuating en- 
ergy costs. We have done a lot in this area, but there is more to 
do. I look forward to working with my agriculture colleagues on 
further agriculture provisions in this bill. 

And finally, I believe that ultimately this bill must include a 
strong renewable electricity standard. 

Let me focus on why this legislation is important. This legisla- 
tion is about putting America back in control of our energy supply. 
It is about our national security, and it is about investing in the 
farmers and the workers of the Midwest instead of the oil cartels 
of the Middle East. 

This is about getting jobs right here in this country. Unlike the 
IT revolution, which was a great thing, but tended to bring jobs to 
certain places in the country, the ET revolution, the energy tech- 
nology revolution, if done right, will mean jobs across the country 
and across demographic lines. In other words, the wind turbine 
manufacturing companies won’t have signs outside that say, Ph.Ds. 
only apply. 

Second, there are a wide variety of solutions to our energy de- 
pendence problem, as Senator Alexander has acknowledged. Some 
critical paths of this bill, which I support, will take years, like de- 
veloping complex technology and building more nuclear plants, 
something that I believe we need to do. But some of the solutions, 
which this bill acknowledges, will be more achievable in the short 
term: energy efficiency, weatherization, using some of the existing 
technologies we have, like solar, wind, geothermal, biomass as 
quickly as possible. 



18 


Third, we need an energy bill, as Senator Kerry had so elo- 
quently discussed, that can send clear market signals that both 
short-term and long-term investment in energy technologies will be 
rewarded, allowing businesses to plan to invest in new technologies 
and realize long-term development of new facilities and operations. 

Finally, we want an energy bill that builds on the work being 
done at the State level. All over the country, we are witnessing im- 
provements to our communities on the State level. Minnesota has 
one of the most aggressive renewable electricity standards in the 
country, 25 percent by 2025. Our biggest utility is Xcel. Its goal is 
30 percent. I have talked to the CEO, Dick Kelly. He said they are 
going to make it, and they are going to make it without increasing 
rates. 

When this legislation passed in Minnesota, it had Democratic 
and Republican support, farmers, environmentalists, traditional en- 
ergy companies. It passed 123 to 10 in the House, 63 to 3 in our 
State Senate and was signed into law by a Republican Governor. 

So while Minnesota and so many other States are already head- 
ing down the path toward a new energy economy, the Federal Gov- 
ernment has not even made it to the trailhead. In a famous opin- 
ion, Justice Brandeis once wrote that States are truly the labora- 
tories of democracy. He said that if one of the happy incidences of 
the Federal system could be that a single courageous State may, 
if its citizens choose, serve as a laboratory and try more social and 
economic experiments without risk to the rest of the country. 

Well, he didn’t mean by that statement that we should have in- 
action by the Federal Government. And that is what has been hap- 
pening. This bill is an opportunity to put the courage and the en- 
trepreneurship of the American people up front and center. It is 
about the thousands of people employed in biofuels plants through- 
out our State, dotting the countryside. It is about nine people in 
Starbuck, Minnesota, that had the courage to leave their jobs to go 
work for a solar panel factory. It is about a little phone company 
in Sebeka, Minnesota, that decided they wanted backup power for 
their customers and put together a wind and solar backup system. 

And one guy who is 80 years old decided that he wanted to outfit 
his whole house that way. And they said, well, you know, you are 
not going to get your investment back, sir, for 10 years, and you 
are 80 years old. He said, that is OK, I want to go green. 

You know, this, if the people of American have this kind of cour- 
age, this Congress should have this courage. That is why I believe 
we need to move forward on this legislation. I hope that eventually 
we will be doing it on a bi-partisan basis. 

Thank you. 

[The prepared statement of Senator Klobuchar follows:] 

Statement of Hon. Amy Klobuchar, 

U.S. Senator from the State of Minnesota 

Senator Boxer, I want to thank you for moving proactively on an issue so impor- 
tant to our Nation’s economy, security, and environment. Your leadership on this 
issue is well recognized, and I appreciate your working with me and my staff on 
this bill to include provisions to protect the middle class, expand agriculture alloca- 
tions, and provide a stable business environment for companies that make energy 
efficient technology. I also appreciate how both you and Senator Kerry have reached 
out across the aisle on this issue to Lindsey Graham and others. I believe this will 



19 


be key to getting the bill passed — at least that’s how we got energy legislation 
passed in my State. 

I look forward to working with you further on key issues including ensuring that 
the bill further protects middle class families as well as businesses and manufactur- 
ers from fluctuating energy costs. We’ve done a lot in this area, but there’s still 
more work to be done. 

As a member of the Agriculture Committee, I’m also looking forward to working 
with my Ag colleagues on additional agricultural provisions. 

Finally, the ultimate bill must have a strong renewable electricity standard. 

Let me first focus on why this legislation is so important. This legislation is about 
putting America back in control of our energy supply. It’s about investing in the 
farmers and workers of the Midwest instead of the oil cartels of the Mideast. Re- 
newable energy — coming from our wind, sun, ground and bio products is by its na- 
ture going to involve jobs right here in our country. Unlike the IT revolution which 
tended to focus the jobs in certain places in our country, the ET revolution, if done 
right, will mean jobs across this country and across demographic lines. In other 
words, the wind turbine manufacturing companies won’t have signs outside that say 
Ph.D.s only apply. 

Second, as acknowledged in the bill, there are a wide variety of solutions to our 
energy dependence problem. Some things will take years — like developing complex 
technology and building more nuclear plants. But some of the solutions are more 
achievable in the short term — conservation, weatherization and using some of the 
existing technologies — solar, wind, geothermal, biomass, as quickly as possible. 

Third, we need an energy bill so that we send clear market signals that both 
short-term and long-term investment energy technologies will be rewarded, allowing 
businesses to plan to invest in new technologies and realize long-term development 
of new facilities and operations. 

Finally, we want an energy bill that builds on the work being done at the State 
level. All over the country, we are witnessing improvements to our communities 
through renewable energy projects, facilities, and products, as well as a focus on in- 
creased energy efficiency. 

For renewable electricity, for instance, I note that Minnesota is further down the 
path than any other State. 

By the year 2025, the State’s energy companies are required to generate 25 per- 
cent of their electricity from renewable sources such as wind, water, solar, and bio- 
mass. The standard is even higher for the State’s largest utility, Xcel Energy, which 
must reach 30 percent by 2020. CEO Dick Kelly has been in my office and said it 
is going to be tough, but they are going to make it, and they’ll meet this goal with- 
out raising rates. 

When this legislation passed in Minnesota, it wasn’t a partisan issue. It was sup- 
ported by both Democrats and Republicans — as well as the farmers and environ- 
mentalists, traditional energy companies and new renewable energy companies. It 
passed overwhelmingly in the Minnesota legislature: 123-10 in the House and 63- 
3 in the Senate, and was signed into law by a Republican Governor. 

But while Minnesota and so many are States are already heading down the path 
toward the new energy economy, Federal legislation has not even made it to the 
trail head. 

In a famous opinion Justice Brandeis once wrote that States are truly the “labora- 
tories of democracy.” He went on to describe the special role of States when it comes 
to experimenting with new policies in our Federal system. 

States are where new ideas emerge, where policymakers can experiment, where 
innovative proposals can be tested. 

Brandeis wrote over 70 years ago, “It is one of the happy incidents of the Federal 
system that a single courageous State may, if its citizens choose, serve as a labora- 
tory; and try novel social and economic experiments without risk to the rest of the 
country.” 

Yet he did not in any way mean for State action — which has been precipitated 
so often in the energy area this decade as a result of Federal inaction — he did not 
mean for State action to serve as an excuse for inaction by the Federal Government. 
Good ideas and successful innovations are supposed to emerge from the laboratory 
and serve as a model for national policy and action. That is now our responsibility 
in Congress. 

When we do this, we need to put the courage and entrepreneurship of the Amer- 
ican people front and center. People in my State believe in this new energy future. 

Or the solar panel factory in Starbuck, Minnesota, where nine people left their 
jobs to go work for this little company. 

Or the story of the little phone company in Sebeka, Minnesota, with back-up 
power. Will take you 10 years. He was 80. I want to go green. 



20 


By being part of something bigger than themselves, by actually seeing this new 
homegrown energy in their own communities, it makes it a lot easier for people to 
support energy legislation, to see it as part of the greater good. 

If you ever visit our office in Washington, you will see a picture on the wall, and 
it’s the picture of an angel placing the world in some outstretched hands, and the 
words read, “The angel shrugged. She placed the world in the palms of our hands, 
and she said, ‘If we fail this time, it will be a failure of imagination.’ ” 

Well, I don’t believe we are going to fail; we can’t. If nine people in a solar panel 
factory in Starbuck, Minnesota, have the courage and imagination to see a new en- 
ergy future and the world of opportunity before us, Congress can, too. 

Thank you. 

Senator Boxer. Thank you so much. 

Now, we do have a lot of speakers. We know that Secretary 
Salazar must leave by noon. So it is my intention to get where we 
are going, and at that point, if we are really slow, we will get to 
at least Secretary Salazar and go back to our plan. 

So here is the list. It is Bond, then Specter, Crapo then Sanders. 

Senator Bond. 

OPENING STATEMENT OF HON. CHRISTOPHER S. BOND, 

U.S. SENATOR FROM THE STATE OF MISSOURI 

Senator Bond. Thank you, Madam Chair, for holding the hear- 
ing. 

Unfortunately, this latest cap-and-trade bill was just released 
late Friday night. That is why the EPA discussion paper is nothing 
more than a political document requested by advocates and acqui- 
esced by politicians. Career EPA experts would usually take about 
6 weeks to conduct a thorough economic analysis. EPA’s analysis 
of Bingaman-Specter ran 252 pages, Lieberman- Warner 193, Wax- 
man-Markey 160. But for Kerry-Boxer, EPA slapped together a 
mere 38 pages of excuses and analogies. 

Left unsaid by EPA is how Kerry-Boxer provides less consumer 
protection against higher prices. The businesses that will be hit 
with this high carbon tax will pass along these higher prices, which 
are disguised taxes, to every family, every small business, every 
farm, in the United States. If you think about it, a smaller pie pro- 
duces smaller slices. In the case of Kerry-Boxer, their bill has a 
more stringent 20 percent target in 2020, instead of 17 percent in 
Waxman-Markey. It means it will distribute 1.46 billion fewer al- 
lowances between 2012 and 2030. And while most of Kerry-Boxer 
and Waxman-Markey’s allocation percentages are the same, the 
Kerry-Boxer allocates smaller. Smaller pie, smaller slices, which 
mean less relief from the burdensome taxes. This means, by my 
calculations, electric consumers will receive nearly $16 billion less 
from Kerry-Boxer in protection against higher energy prices. 

Since consumers and workers in coal dependent States like the 
Midwest will bear the brunt of this multi-million dollar shortfall, 
we deserve to know how much less it will protect gas consumers 
and trade exposed workers. Another gaping hole is the plight of 
farmers, a major concern in the Midwest and South. Cap-and-trade 
threatens farmers and livestock producers with higher production 
costs, from fuel to run their machinery to fertilizer to drying costs 
to the cost of shipping their goods to market. It is as if the Kerry- 
Boxer bill is telling farmers and the ag communities, you are not 
important. It took away the USDA’s offset role, negotiated in the 
House, removed the 5-year pause in EPA’s indirect land use rule. 



21 


It proposes uncertain potential for ag offsets. It proposes higher 
production costs for farmers. And their bill will result in ag lands 
taken out of production. That means higher food prices for all of 
us. 

The last dynamic is a result of farmers reacting to a carbon offset 
program by taking land out of production. Higher food prices, more 
pain at the grocery checkout for families. I don’t know if EPA even 
understands, or else they chose not to discuss in their discussion 
paper these land production dynamics and the regional disparities 
in crop and production cost estimates. America deserves better. 
America’s families, farmers, and workers deserve to know how 
Kerry-Boxer will impose trillions of dollars in higher energy taxes, 
kill millions of jobs and treat unfairly entire regions of the country 
such as the Midwest, South and Great Plains. 

The analysis discussed about new green jobs did not mention the 
tremendous costs to existing jobs of this carbon tax to be passed 
throughout our economy. Independent organizations not swayed by 
the Administration’s influence, such as the Congressional Budget 
Office, say the same thing, cap-and-trade will hurt the economy 
and cost jobs. 

Now, we can make this country, including the North American 
continent, energy independent in 15 years, if we have some leader- 
ship to start developing in an environmentally friendly, efficient 
way to tap the energy resources that we have. Producing more of 
the energy we need here, using significantly more nuclear power, 
using energy conservation, using electric cars. These will generate 
more good jobs, produce more revenue, instead of costing the tre- 
mendous amount of taxpayer subsidies for wind and solar. And we 
can do that without costing jobs that are higher pay, existing jobs 
throughout the economy. 

We want to see changes. But we want to make them smart, en- 
ergy efficient, not kill jobs, not put burdens on families, small busi- 
nesses and farmers. 

I thank the Chair. 

Senator Boxer. Thank you very much. 

Senator Specter. 

OPENING STATEMENT OF HON. ARLEN SPECTER, 

U.S. SENATOR FROM THE STATE OF PENNSYLVANIA 

Senator Specter. Thank you, Madam Chairwoman. 

I think it is not too much to say that what we are doing today 
may really turn out to be historic, as we grapple with very critical 
objectives. The objective of providing energy for our country, to 
take care of us and our economy in the future, to deal with climate 
change and to protect the planet from global warming, and to free 
ourselves from dependence on OPEC and Venezuelan oil. 

I compliment you, Madam Chairwoman, for your prodigious work 
here, and both you and Senator Kerry for producing the legislation 
we are looking toward today. I note, as everyone must, the very 
heavy political overtone at the start of these hearings. It is my 
hope that we will listen to the witnesses. We all are concerned 
about job loss. 

My State, Pennsylvania, is a microcosm. It has been built upon 
coal and steel. And it is critical that any legislation take into ac- 



22 


count those factors. My State has a great deal of natural gas with 
the new Marcellus Shale, opening clean fuel for the future. My 
State is a leader on green jobs. A week ago today, I held a hearing 
in Pittsburgh on the potential of green jobs. But at the same time, 
concerned as to what would happen in southwestern Pennsylvania 
in the coal mines. 

Now, we are building on Lieberman-Warner, and in the 109th 
Congress I worked with Senator Bingaman to try to craft a mod- 
erate bill which got support from many of the environmental 
groups, got support from the power plants and got support from the 
United Mine Workers. Now, for a Pennsylvania Senator, support 
from those facets, especially the mine workers, is very, very impor- 
tant. 

We are open for business for people who have problems and 
ideas. Yesterday, I met with the Building Trades Council in Penn- 
sylvania. And they brought to my attention, as it had been before, 
the refinery problem. Well, our refineries are not up to date. And 
there are problems with them. But there are thousands of jobs in 
Philadelphia on the Sunoco refinery and on the Conoco Phillips re- 
finery. So when I hear comments about loss of jobs and higher 
costs for consumers, I am very, very much concerned with that. 

We have dedicated some $80 billion in the stimulus package to 
wind and hydro power. So we are moving ahead. So it is com- 
plicated. I have been in the Senate a while, and I haven’t seen two 
mammoth legislative problems like health care and climate control, 
which we are facing now. But it would be my hope that we will fi- 
nally get to the witnesses, and then we will have other witnesses. 
And the people who have raised objections, I respect them, have 
worked with them for a long time. We will bring their witnesses 
in, and let’s be fact oriented, and let’s look for public policy. We all 
have the same objectives and the same goals. It would be very re- 
freshing in America today if we could find a bi-partisan answer. 

Thank you, Madam Chairwoman. 

Senator Boxer. Thank you so much, Senator. 

Let’s see, next is Senator Sanders, who isn’t here, so we will go — 
I am sorry. 

Senator Crapo. 

OPENING STATEMENT OF HON. MIKE CRAPO, 

U.S. SENATOR FROM THE STATE OF IDAHO 

Senator Crapo. Thank you very much, Madam Chairman. 

I want to comment on a few things like process and a few aspects 
of the bill that I want to highlight, and then conclude discussing 
the policy issues that a number of my colleagues have already ad- 
dressed. 

With regard to process, Madam Chairman, I want to congratu- 
late you for having some bill language for us to evaluate, although 
we just barely got it. I just went through the process in the Fi- 
nance Committee of having to actually go through an entire 2-week 
markup and vote on a bill that didn’t exist. In fact, I am not sure 
it ever did get fully drafted, because then it was redrafted as it was 
merged with the Health Committee bill. That process was flawed. 

I appreciate the fact that we have bill language. I would hope 
that as we move through the hearing process here that we will also 



23 


take the time to get a thorough EPA analysis and to get a thorough 
CBO score before we would go to any kind of a markup. And let 
the American public, as well as this committee, to truly vet this 
legislation and understand what the exact wording in the bill 
means and does for us. 

Second, I appreciate our witnesses begin here today. I work with 
all of them and appreciate the relationship I have with them and 
look forward to hearing what they have to say. I do wish that the 
Secretary of Agriculture was here. In fact, Madam Chairman, I 
wish that the legislation gave the Secretary of Agriculture a great- 
er role. 

Senator Boxer. Senator, if you would yield without losing any 
time, we do have a statement. He is traveling in China. But he has 
a wonderful statement which I will quote from later. 

Senator Crapo. All right, good. I appreciate that. And actually, 
the legislation as it is now structured puts the EPA in charge of 
the offset programs for farmers and foresters, as I understand it; 
is that not correct? 

Senator Boxer. That is not correct. Again, without losing his 
time, we leave it up, we say the White House will, it is a place 
holder for the Ag Committee, which Chairman Lincoln under- 
stands. And she is planning to fill it in. So as we have a place hold- 
er for Finance, we have a place holder for Ag. And in the bill, it 
just says right now that the White House will determine who 
would be in charge of it. 

Senator Crapo. All right, very good. This just shows the impor- 
tance of us being able to have the time to know what is in the bill 
and to vet it adequately. But I really do hope that when we get to 
that point and we get it finalized that we have the Department of 
Agriculture in charge of managing the offsets in any bill that we 
might pass dealing with farmers and foresters. 

I want to move now to the policy issues that we are all dis- 
cussing. I really don’t believe there is a huge disagreement between 
us on the need for us to move forward and develop a very robust 
and meaningful national energy policy that will help us to dramati- 
cally remove or reduce our dependence on carbon-based forms of 
energy. I personally think that our country is far too dependent on 
petroleum as a form of energy. Not that we shouldn’t recognize the 
need for petroleum and develop our own resources, because frankly, 
we are also far too dependent on foreign sources of that energy. 
And as Senator Kerry indicated, that creates a threat not only to 
our national security in a defense context, it creates a threat to our 
economy, as we have most of our eggs in just one or two baskets, 
so to speak. 

So I strongly support developing a national energy policy that 
will help us to become more diversified. I often analogize it to an 
investment portfolio, and very few people would invest all of their 
assets or resources in one place or just a couple places. A diversi- 
fied investment portfolio is clearly a better way to approach our en- 
ergy policy, just like it would be in managing one’s own financial 
circumstances. 

Because of that, I am a very strong advocate for wind and solar 
and geothermal and nuclear, which I am going to talk a little bit 
more about, and a number of other kinds of energy. My point, 



24 


though, is very similar to that made by Senator Alexander. And 
that is that as we move to new, strong, robust energy policy in our 
country, we should do so in a way that does not devastate the econ- 
omy. I am concerned that the provisions of this legislation would 
have the impact that many of my colleagues have already identi- 
fied. We can do things like focus on conservation aggressively and 
find tremendous reductions of consumption just in the conservation 
arena. In fact, every bit of energy that we conserve is the equiva- 
lent, in my opinion, to energy generated. 

Second, nuclear power. And I wish the bill did more for nuclear 
power. Reading from the text of the bill itself, which does have a 
nuclear section, it talks about how nuclear energy is the largest 
provider of clean, low carbon electricity, almost eight times larger 
than all renewable power production combined, excluding hydro- 
electric power. This is from the bill itself. 

Senator Boxer. [Remarks off microphone.] 

Senator Crapo. I appreciate that. My problem is that we con- 
tinue, in different contexts, to hear positive support with regard to 
nuclear, but the specific serious details that the committee needs 
to be getting into with regard to nuclear, in terms of the loan guar- 
anty programs, the financial commitments to construction of new 
sites, the effort to address the incredible regulatory burdens and 
delays that are stopping us from being able to move forward ag- 
gressively. Those kinds of very robust energy policies in the nuclear 
context need to be put in the bill, rather than just the findings 
about how important nuclear is. 

So I appreciate the fact that the Chairman has put this in the 
legislation and I hope to work with her. We are already working 
with many members of the committee to address this issue and get 
a robust energy title. 

Senator Boxer. Thank you very much. 

Senator Sanders isn’t here, so we will skip over him until he gets 
back and go to Senator Udall. 

OPENING STATEMENT OF HON. TOM UDALL, 

U.S. SENATOR FROM THE STATE OF NEW MEXICO 

Senator Udall. Thank you very much, Chairman Boxer. Thank 
you for your leadership. I have said a number of times here that 
you have weighed in in such a way that has been very persuasive, 
and I think Senator Kerry joining us in these Tuesday group ses- 
sions has been very, very helpful. 

Today we are facing a narrow window of opportunity on three 
fronts: our economy, our environment and our national security. 
Every recent economic downturn in our country has been preceded 
by a major spike in energy prices, and 2008 was no exception. With 
world oil production flat, we are likely going to see worse than $4 
gasoline when the world economy turns around and demand re- 
turns. Nobody wants to see that, but I am afraid that is where we 
are headed. 

Our legislation here today offers a way out of that economic trap. 
We can loosen our dependence on foreign oil supplies, which are 
limited and restricted, and create jobs and home grown energy. 

This legislation takes a do it all, do it right approach to energy 
policy. The bill today provides powerful incentives for plentiful, af- 



25 


fordable, renewable energy like wind and solar. The bill will create 
tens of thousands of jobs that save hundreds of billions of dollars 
in energy efficiency. The bill provides critical resources to increase 
the safety and security of our nuclear energy power plants. The bill 
provides incentives to tap our abundant low carbon supplies of 
American natural gas, which have increase by 40 percent in just 
the last 2 years. 

The bill improves upon the already substantial investments in 
carbon capture and sequestration for coal power that were made in 
the House legislation. And the bill provides strong incentives to 
capture CO 2 for enhanced domestic oil recovery, which can increase 
our domestic oil supplies by four times, enough supply for a decade 
or more. 

The bill improves the renewable fuel standard by creating a tech- 
nology neutral standard, which is important for new, innovative 
sources of biofuel like algae. The incentives in this legislation are 
based on a fundamental principle: the polluter pays. There should 
be a fee for permits to pollute, since pollution is a cost imposed by 
a profit making entity on society. 

If polluters do not have to consider the costs of their actions, 
then society will face the costs of global warming: increased 
droughts, wildfires, crop loss and flooding. Society at large will pay 
the cost instead. 

Finally, we must find new sources of energy to preserve our na- 
tional security and independence. Two-thirds of the world’s oil sup- 
plies lie in six Middle Eastern nations and Russia, which do not, 
do not operate based on market principles. Future Presidents will 
face national security decisions if we enact this legislation and 
move rapidly toward energy independence. 

And I am going to yield back my time now, because I anxiously 
await the testimony of our excellent panel and look forward to 
hearing Secretary Salazar and the others here. Thank you. 

Senator Boxer. Thank you, Senator Udall. 

Senator Voinovich. 

OPENING STATEMENT OF HON. GEORGE V. VOINOVICH, 

U.S. SENATOR FROM THE STATE OF OHIO 

Senator Voinovich. Thank you, Madam Chairwoman. 

Climate change, I think we know, is a serious and complex issue 
that deserves our full attention. I think that Senator Alexander did 
a very good of eloquently stating that there are alternatives to this 
legislation, and I think that Senator Bond did a very good job of 
outlining the impact that this legislation would have on the econ- 
omy of our country. 

This may be the most single significant piece of legislation that 
has come before this committee, touching every section of the econ- 
omy and having an immense energy, economic, environmental and 
national security consequences. Yet despite our requests of earlier 
this year, the committee plans no legislative hearings on specific 
bill texts. Rather, we will proceed with conceptual hearings only. 
And now I am told we will proceed to a markup and final vote on 
November 3. 

I note that on legislation of significant importance the Senate 
has a history of expending the time and consideration necessary to 



26 


achieve broad bi-partisan support before reporting legislation out of 
committee. For example, when considering the American Clean En- 
ergy Leadership Act, the Senate Energy Committee held 19 formal 
hearings and 11 open business meetings over a span of 5 and a half 
months before favorably reporting out a bill, a bi-partisan bill. 

Following a similar process during consideration of this legisla- 
tion is important, because we cannot afford to get it wrong. At this 
point, we do not fully understand how this legislation will impact 
GDP or the price, supply and reliability of electricity, gasoline and 
other commodities that millions of Americans are going to have to 
pay. What is more, we don’t know if the bill will have any appre- 
ciable impact on climate change. EPA’s recent economic analysis of 
the bill fails to provide answers to these questions. Instead, it com- 
pares and contrasts various provisions of 1733 with the Waxman- 
Markey bill. 

First, a credible legislative process on Kerry-Boxer cannot be 
supported by a piecemeal analysis based on estimates from the 
House bill. Second, EPA did not model all the Waxman-Markey 
provisions and include in their assessment assumptions concerning 
the timing and availability of clean energy technologies, CCS, nu- 
clear and offsets that defy technological, practical and political re- 
alities. 

We do have a comprehensive analysis from various outside 
groups on the possible impacts. For example, the American Council 
for Capital Formation has concluded by 2020, the House bill could 
reduce household income in my State of over $261 per year, in- 
crease energy costs up to 20 percent, and result in the net loss of 
more than 100,000 jobs. 

I have been working with the EPA for a number of months to 
correct these deficiencies. While we made progress on that front, 
we now face a hurried political agenda. At this stage of the game, 
I think the most important thing is that we get a comprehensive 
analysis on this bill before we proceed to markup. 

And only the Chairman of this committee and the Administration 
can make this possible. I recall when I had the Clear Skies legisla- 
tion before this committee that the members on the other side of 
the aisle insisted that they have analysis of their prospective bills 
before we marked up the Clear Skies legislation. They delayed the 
markup on three occasions, it was over a 2- or 3-month period, in 
spite of the fact that we provided 10,000 pages of analysis. 

Madam Chairman, I made the point the last time around, and 
that was that we needed the EPA to do the analysis, complete 
analysis before this bill went to the floor. I think you realize what 
a disaster it was when it hit the floor because of the few number 
of the members of the U.S. Senate that actually supported it. 

In closing, I reference an October 21, 2009, New York Times arti- 
cle by John Broder, which states in regard to Copenhagen, “The 
United States and many other countries have concluded that it is 
more useful to take incremental steps toward a global agreement 
rather than try to jam it down through a treaty.” The article goes 
on to say, “U.S. officials and congressional leaders have said that 
final legislative action on a climate bill would not occur before the 
first half of next year.” 



27 


So Madam Chairman, the question I have for you and Senator 
Kerry and the other members of this committee, why are we trying 
to jam down this legislation now? Wouldn’t it be smarter — wouldn’t 
it be smarter to take our time and do it right, like we didn’t do it 
the last time around that we had this legislation before us? 

[The prepared statement of Senator Voinovich follows:] 

Statement of Hon. George V. Voinovich, 

U.S. Senator from the State of Ohio 

Madam Chairwoman, climate change is a serious and complex issue that deserves 
our full attention. I acknowledge your commitment to timely legislation, but the ab- 
breviated process by which this legislation is moving is not conducive to thoughtful, 
bipartisan climate change legislation. 

This may be the single most significant piece of legislation that has ever come 
before this committee, touching every sector of the economy and having immense 
energy, economic, environmental and national security consequences. Yet despite 
our requests of earlier this year, the committee plans no legislative hearings on spe- 
cific bill text; rather, we will proceed with conceptual hearings only. Now, I am told 
that we will proceed to a markup, and a final vote, on November 3. 

I note that, on legislation of significant importance, the Senate has a history of 
expending the time and consideration necessary to achieve broad, bipartisan support 
before reporting legislation out of committee. For example, when considering the 
American Clean Energy Leadership Act (ACELA), the Senate Energy Committee 
held 19 formal hearings and 11 open business meetings over a span of 5 and a half 
months before favorably reporting a bill with bipartisan support. 

Following a similar process during consideration of this legislation is important 
because we cannot afford to get this wrong. 

At this point we do not fully understand how this legislation will impact GDP or 
the price, supply and reliability of electricity, gasoline and other commodities that 
millions of Americans depend upon every day. What’s more, we don’t know if the 
bill will have any appreciable impact on climate change. 

EPA’s recent economic analysis of the Kerry-Boxer climate bill fails to provide an- 
swers to these questions. Instead, it compares and contrasts various provisions of 
S. 1733 with Waxman-Markey bill. 

First, a credible legislative process on Kerry-Boxer cannot be supported by a 
piecemeal analysis based upon estimates from the House bill. Second, EPA did not 
model all of Waxman-Markey’s major provisions and included in their assessment 
assumptions concerning the timing and availability of clean energy technologies (e.g. 
CCS and nuclear) and offsets that defy technological, practical and political realities. 

We do have comprehensive analyses from various outside groups on the possible 
impacts of Waxman-Markey. For example, the American Council for Capital Forma- 
tion has concluded that by 2020 the House bill could reduce household income in 
my home State of Ohio by up to $261 per year on average, increase energy costs 
by up to 20 percent, and result in a net loss of more than 100,000 jobs. But this 
is no substitute for EPA’s providing a comprehensive, unbiased assessment of the 
bill. 

I have been working with EPA for a number of months to correct these defi- 
ciencies. And while we have made progress on that front, we now face a hurried 
political agenda. At this stage of the game, I would be willing to release my hold 
on Robert Perciasepe if EPA is given the time necessary to provide a comprehensive 
analysis on the bill before we proceed to mark up. 

Last year’s bill — the Lieberman- Warner proposal — saw a miserable showing on 
the Senate floor. It gathered only 32 votes on the Senate floor — and subsequent to 
the vote, 9 of the Senators voting to limit debate sent Senator Reid a letter saying 
they wouldn’t have votes for the bill on final passage. I predict that if we rush this 
bill through committee without a considered, thoughtful amendment process, we 
will have a similar result. 

Madam Chairwoman, when this committee was considering the Clear Skies Act — 
legislation that was far less complicated or far reaching — several analyses were 
completed as we considered legislative text. I recall that Senators Baucus, Carper, 
Chaffee and Obama were adamant that we have an EPA analysis on their alter- 
native proposals before moving forward. In fact, even after the Administration gave 
them 10,000 pages of analyses, they delayed the mark up three times. I insist that 
similar consideration be afforded to us in this process. 

In closing, I reference an October 21, 2009, New York Times article, which states 
in regard to Copenhagen, “the United States and many other . . . countries have con- 



28 


eluded that it is more useful to take incremental . . . steps toward a global agree- 
ment rather than to try to jam through a treaty.” The article goes on to say: “[IJ.S.l 
officials and congressional leaders have said that final legislative action on a climate 
bill would not occur before the first half of next year.” 

So Madam Chairwoman, the question I have for you and Senator Kerry is, why 
are you trying to jam this legislation through committee when it is unlikely we will 
move legislation or that a treaty will be ratified this year? 

Senator Boxer. Thank you, Senator. I am going to answer a cou- 
ple of things you said, I think it is important. 

No. 1, in terms of process, the committee rules say you have to 
have a bill out for 3 days before markup. Ours will be out for 10 
days. And I appreciate Senator Crapo’s comments about that. 

No. 2, this need for bi-partisanship — believe me, I would give 
anything if I had a John Warner still sitting here. We don’t have 
it. Climate change, global warming, isn’t waiting for who is a Dem- 
ocrat and who is a Republican. Either we are going to deal with 
this problem or we are not. That is No. 2. 

And as was stated before, we are going to be in negotiations with 
both sides, with members on and off this committee. 

The last point I am going to put in the record, a study that 
shows that Senator Alexander’s plan to build 100 nuclear plants by 
2030 would cost $800 billion, all paid for by ratepayers. And most 
of us on this side of the aisle believe a better way to go is our legis- 
lation, because putting a price on carbon will make the nuclear 
field way more competitive and will result in 200 plants being 
built. 

So I think that is part of the debate we are going to have. Very 
last point I am going to put in the record, John Kerry’s good staff 
work here, analysis of jobs in every State showing that, these are 
net jobs created in Ohio, 35,000 to 61,000 jobs. These are studies 
that were done over a great period of time. So put all that in record 
and call on Senator Lautenberg. 

[The referenced information follows:] 



i ' 

GENERATING FAILURE 

How Building Nut I ear Power Plants We utd Set 
America Back Sin the Race Against Global Warms ng 



30 


Generating Failure 

How Building Nuclear Power Plants Would 
Set America Back in the Race Against Global Warming 


Travis Madsen and Tony Dutzik 
Frontier Group 

Bernadette Del Chiaro and Rob Sargent 
Environment America Research & Policy Center 

November 2009 




31 


Acknowledgments 


T he authors wish to thank Peter Bradford, Adjunct Professor at Vermont Law School; Dr. Nathan 
Hultman at the University of Maryland School of Public Policy and the Joint Global Change 
Research Institute at Pacific Northwest National Laboratory; Matthew Freedman at TURN; and 
Bill Marcus at JBS Energy, Inc., for their insightful comments on drafts of this report. Thanks also to 
Sahil Kapur and Elizabeth Ridlington at Frontier Group for research and editorial support. 

Environment Maryland Research & Policy Center is grateful to the Educational Foundation of America 
for making this report possible. 

The authors bear responsibility for any factual errors. The recommendations are those of Environment 
Maryland Research & Policy Center. The views expressed in this report are those of the authors and do 
not necessarily reflect the views of our funders or those who provided review. 

© 2009 Environment Maryland Research & Policy Center 

Environment Maryland Research & Policy Center is a 501(c)(3) organization. We are dedicated to 
protecting Maryland’s air, water and open spaces. We investigate problems, craft solutions, educate 
the public and decision makers, and help Marylanders make their voices heard in local, state and 
national debates over the quality of our environment and our lives. For more information about 
Environment Maryland Research & Policy Center or for additional copies of this report, please visit 
www.environmentmaryland.org. 

Frontier Group conducts independent research and policy analysis to support a cleaner, healthier and 
more democratic society. Our mission is to inject accurate information and compelling ideas into public 
policy debates at the local, state and federal levels. For more information about Frontier Group, please 
visit www.frontiergroup.org. 


Cover photo: iStockPhoto/ Anthony Clausen 


Layout: Alec Meltzer, meltzerdesign.net 



32 

Table of Contents 


Executive Summary i 

Introduction 6 

America Must Act Quickly to Limit 

the Consequences of Global Warming 8 

Global Warming Threatens the Health 

and Well-Being of All Americans 9 

To Limit the Consequences of Global Warming, 

America Must Swiftly and Substantially Cut 

Emissions of Global Warming Pollution 10 

Nuclear Power Is Not a Solution to Global Warming 15 

Nuclear Power Is Too Slow to Reduce 

Global Warming Pollution in the Near-Term 1 5 

Choosing to Build New Reactors Would Divert 

Resources from More Cost-Effective Strategies 24 

Nuclear Power Is Not Needed to Provide 

Reliable, Low-Carbon Electricity for the Future 31 

Policy Recommendations 37 

Methodology 39 

Notes 42 



33 


Executive Summary 


F ar from being a solution to global warming, 
nuclear power will actually set America back 
in the race to reduce pollution. Nuclearpower 
is too slow and too expensive to make enough of 
a difference in the next two decades. Moreover, 
nuclear power is not necessary to provide dean, 
carbon-free electricity for the long haul. 

The up-front capital investment required to build 
100 new nuclear reactors could prevent twice as 
much pollution over the next 20 years if invested 
in energy efficiency and clean, renewable energy 
instead. Taking into account the ongoing costs of 
running the nuclear plants, a clean energy path 
would deliver as much as five times more progress 
for the money. 

Early action matters in the fight against 
global warming. 


warming pollution by 25 to 40 percent below 
1990 levels by 2020. 

■ Reducing emissions from power plants holds 
large potential for early progress. The share of 
the U.S. emissions budget available to electric 
power plants could be as little as 34 billion 
metric tons of carbon dioxide (C0 2 ) from 
2010 cumulatively through 2050. 

New nuclear reactors would be built too slowly 
to reduce global warming pollution in the near 
term, and would actually increase the scale of 
action required in the future. 

■ No new reactors are now under construction 
in the United States. The nuclear industry will 
not complete the first new reactor until at least 
2016, optimistically assuming construction 
will take four years after regulatory approval. 


■ The more total carbon dioxide pollution that . 
humanity emits into the atmosphere, the 
greaterthewarming-andconsequentdamage. 
Earlier action allows us more flexibility to 
respond to an evolving understanding of 
humanity's role in shaping the climate. 

* According to current science, humanity as a 
whole can emit no more than 1 trillion metric 
tons of carbon dioxide from 2000 through 
2050 in order to have a 75 percent chance of ■ 
limiting the global temperature increase to 
3.6° F above the pre-industrial era - a target 
the international community has set to limit 
the severity of global warming impacts. This 1 
trillion metric tons is our “carbon budget." 

■ To facilitate keeping total emissions within this 
budget, a panel of distinguished Nobel Prize- 
winning scientists have called on developed ■ 
nations to reduce their emissions of global 


However, it is likely that no new nuclear 
reactors could be online until 2018 or later. 
During the last wave of nuclear construction 
in the United States, the average reactor took 
nine years to build. New reactors are likely to 
experience similar delays. For example, a new 
reactor now under construction in Finland 
is at least three years behind schedule after a 
series of quality control failures. 

The American nuclear industry is not 
ready to move quickly. No American power 
company has ordered a new nuclear power 
plant since 1978, and all reactors ordered 
after the fall of 1973 ended up cancelled. As 
a result, domestic manufacturing capability 
for nuclear reactor parts has withered and 
trained personnel are scarce. 

Even if the nuclear industry managed to 
complete 100 new reactors in the United 


How Building Nuciear Power Plants Would Set America Back in the Race Against Global Warming 



34 


States by 2030 - the level of construction In contrast, energy efficiency and renewable 

advocated by supporters of nuclear power energy sources can make an immediate 

- new nuclear power plants could still only contribution toward reducing global warming 

reduce cumulative power plant emissions by pollution. 

12 percent over the next two decades, leading 

to a higher and later peak in pollution. As a ■ Clean energy can begin cutting emissions 

result, America would bum through its 40- immediately. Energy efficiency programs are 

year electric sector carbon budget in just 15 already reducing electricity consumption by 

years. (See Figure ES-1.) 1-2 percent below forecast levels annually 

in leading states, and the U.S. wind industry 
is already building the equivalent of three 
nuclear reactors per year in wind farms, and 
growing rapidly. 

Figure ES-1 : Projected Cumulative Electric Sector Emissions of Global Warming 
Pollution after 2010 with No Action, 1 00 New Reactors Built by 2030, or an 
Equivalent Capital Investment in Clean Energy 

60,000 -j . 

Reference Case 
(AEO 2009) 

100 Nuclear 
Reactors by 2030 

Equivalent Capital 
Investment in 
Clean Energy 
(Midpoint) 


2010 2015 2020 2025 2030 

Nuclear reactors are too slow to cut enough pollution in the next two decades. With the up-front capital 
investment required to build 100 new nuclear reactors, America could achieve twice as much by investing in 
clean energy instead. 



Generating Failure 




35 


* With the up-front capital investment required 
to build 100 new nuclear reactors, America 
could prevent twice as much pollution in the 
next 20 years by investing in clean energy 
instead. (Midpoint estimate, see Figure ES-1 
and page 21 for more details.) 

■ However, even this level of investment in 
clean energy would not be enough to keep 
U.S. power plant emissions within budget. 
(See Figure ES-1.) America should cut power 
plant emissions on the order of 50 percent 
within the next decade to limit the worst 
consequences of global warming. 

Nuclear power is expensive and will divert 

resources from more cost-effective energy 

strategies. 

■ Building 100 new nuclear reactors would 
require an up-front capital investment on the 
order of $600 billion (with a possible range of 
$250 billion to $1 trillion), diverting money 
away from cleaner and cheaper solutions. 

■ Any up-front investment in nuclear power 
would lock in additional expenditures over 
time. Over the life of a new reactor, the 
electricity it produces could cost in the range 
of 12 to 20 cents per kilowatt-hour, or more. 
In contrast, a capital investment in energy 
efficiency actually pays us back several times 
over with ongoing savings on electricity bills, 
and an investment in renewable power can 
deliver electricity for much less cost. 

■ Per dollar spent over the lifetime of the 
technology, energy efficiency and biomass 
co-firing are five times more effective at 
preventing carbon dioxide pollution, and 
combined heat and power (in which a power 
plant generates both electricity and heat for 
a building or industrial application) is greater 
than three times more effective. In 2018, 
biomass and land-based wind energy will be 
more than twice as effective, and offshore 
wind power will be on the order of 30 percent 


more effective per dollar of investment, even 
without the benefit of the renewable energy 
production tax credit. (See Figure ES-2.) 

■ By 2018, and possibly sooner, solar 
photovoltaic power should be comparable 
to a new nuclear reactor in terms of its per- 
dollar ability to prevent global warming 
pollution. Some analyses imply that thin film 
solar photovoltaic power is already more cost- 
effective than a new reactor. And solar power 
is rapidly growing cheaper, while nuclear 
costs are not likely to decline. 

N uclear power is not needed to provide relia ble, 

low-carbon electricity for the future. 

■ Nuclear power proponents argue that nuclear 
plants are needed to produce low-carbon 
"base-load” power. However, the need for 
base-load power is exaggerated and small- 
scale clean energy solutions can actually 
enhance the reliability of the electric grid. 

■ Many clean power sources - including 
energy efficiency improvements, combined 
heat-and- power technologies and renewable 
energy sources such as biomass, geothermal 
energy and solar thermal power with heat 
storage - are available at any time, just like 
nuclear power. Others, including wind and 
solar photovoltaic power, are predictable with 
about 80-90 percent accuracy a day in advance. 
With proper planning and investments in a 
"smart grid” to facilitate wise use of resources, 
clean energy solutions could supply the vast 
bulk of America's electricity needs. 

■ Over-reliance on base-load power plants such 
as nuclear reactors can harm the reliability of 
the grid. Because nuclear reactors provide 
power in massive, inflexible, all-or-nothing 
blocks, they often produce large amounts 
of power at times when few people need it. 
Moreover, when a reactor fails, it can have 
dramatic and widespread consequences for 
the availability of electricity. For example, 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



36 


Figure ES-2: Comparative Ability of Electricity Technologies to Prevent Global 
Warming Pollution, per 2018 Dollar Spent over Technology Lifetime - Online in 
2018, Merchant Financing Terms 


c 

,o 

*45 

e 

u 

> 

01 

fc- 

CL 



3 


O 

a 

O) 


E 


I 


-Q 

_o 



20iS, a reasonable estimate for the first date a new reactor could be online, nuclear power will be among 
the least cost-effective options for reducing global warming pollution. Source: see discussion on page 29 and 
Methodology on page 39. 


Generating Failure 


37 


when a power line failure triggered the 
shutdown of two nuclear reactors at Turkey 
Point in southern Florida in February 2008, 
more than 3 million customers in the Miami 
area lost power for up to five hours - causing 
traffic jams, stranding people in elevators, 
and widely disrupting business. 

To address global warming, U.S. policy should 
focus on improving energy efficiency and 
generating electricity from clean sources that 
never run out - such as wind, solar, biomass ■ 
and geothermal power. State and federal 
leaders should: 

■ Oppose additional subsidies for nuclear 
power. Nuclear power has already benefited 
from more than $140 billion in federal subsidies 
over the last half-century, from liability 
protection to loan guarantees. The federal " 
government should not further subsidize new 
nuclear power plants. Any subsidies for low- 
carbon energy alternatives must be judged 
based on their relative short-term and long- 
term costs and environmental advantages. 

■ Reduce the nation's emissions deeply 
enough to prevent dangerous impacts 
from global warming, guided by the latest 
scientific understanding. The United States 
should reduce its emissions of global warming 
pollution 35 percent below 2005 levels, 


with the vast majority of emissions coming 
domestically, and reduce emissions by more 
than 80 percent by 2050. Polluters should pay 
for any right to use the atmosphere, and any 
revenues should support investments in clean 
energy and benefit consumers. The United 
States should also work with other nations 
to achieve an international agreement to do 
what it takes to prevent the worst impacts of 
global warming. 

Require the nation to reduce overall 
electricity use by 15 percent by 2020 and to 
obtain at least 25 percent of its electricity 
from clean, renewable sources of energy 
that never run out, such as wind and solar 
power, by 2025. States should also enact 
similar policies or expand existing targets. 

Strengthen energy efficiency standards and 
codes for appliances and buildings with the 
goal of reducing energy consumption in new 
buildings by 50 percent by 2020 and ensuring 
that all new buildings use zero net energy 
by 2030. Advanced states should go further, 
aiming for all new buildings to achieve net- 
zero energy performance by 2020. 

Invest in electric grid modernization to 
maximize our potential to take advantage 
of a diverse range of energy efficiency 
opportunities and clean power sources. 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



38 


Introduction 


P eople around the world are growing 
increasingly alarmed about global warming 
— and for good reason. Every day, it seems, 
scientists announce a new finding that points 
toward grave peril for our civilization. 1 

The damaging impacts of warming - from the 
acidification of the world's oceans to melting 
glaciers and rising sea levels - are happening even 
faster than the most eye-opening predictions 
made by the United Nations' Intergovernmental 
Panel on Climate Change just two years ago. 2 
Scientists are becoming increasingly concerned 
that critical thresholds are a matter of years or a 
few decades away - beyond which lay dramatic 
and irreversible changes to our world and our 
way of life. 3 

Given the pollution that humans have already 
produced, some impacts, such as the melting of 
mountain glaciers and the resulting disruption 
of water supplies, will be unavoidable and 
irreversible. 4 However, with immediate, swift and 
decisive action at all levels of government - local, 
state, national and international - we still have a 
chance to avoid many of the most catastrophic 
impacts of global warming. 

Given the scale of the threat, we should put every 
possible solution on the table, except for the status 
quo. We should carefully consider all sources of 
carbon-free energy - even nuclear power - to 
make sure that we choose the approach most 
likely to deliver success. 

The nuclear industry has worked tirelessly over 
the last decade to position itself as a solution to 
global warming. 5 On the surface, the case looks 
reasonable. Nuclear power is capable of producing 
large amounts of electricity while emitting little 
to none of the heat- trapping gases that cause 


global warming. 6 Nuclear power advocates have 
coalesced around a vision of building 100 new 
reactors in the United States by 2030, doubling 
the current fleet of reactors and moving America’s 
economy away from its dependence on polluting 
fossil fuels. 7 

This report takes a closer look at how new 
nuclear power could contribute to the fight 
against global warming. The report focuses on 
the need for solutions that deliver rapid and 
substantial progress in reducing America's 
emissions of global warming pollution within 
the next 10 to 20 years; cut pollution in a cost- 
effective way compared to other strategies; and 
maintain reliable electricity service. 

By these measures, nuclear power simply isn't 
up to the job. Putting aside the unresolved 
problem of how to safely dispose of nuclear 
waste, the environmental impacts of mining and 
processing uranium, the risk of nuclear weapons 
proliferation, and the potential consequences of 
an accident or terrorist attack at a nuclear power 
plant, the nuclear industry simply cannot build 
new reactors fast enough to deliver the progress 
we need on a time scale that will make enough of 
a difference. Moreover, new nuclear reactors are 
far more expensive than other forms of emission- 
free electricity. Investing in a new generation of 
nuclear reactors would actually delay needed 
progress and divert critical investment dollars 
away from better solutions. 

Despite billions in government subsidies made 
available through the Energy Policy Act of 
2005, and a streamlined permitting process at 
the Nuclear Regulatory Commission, no new 
nuclear reactors are yet under construction. 
Looking at the state of the industry in 2009, 
nuclear industry experts at the Massachusetts 


Generating Failure 



39 


Institute of Technology warn that without more 
government action to support the technology, 
"nuclear power will diminish as a practical and 
timely option for” reducing the odds of catastrophic 
global warming . 8 

This report concludes that government action to 
address global warming would be better focused on 
the wide range of other technologies that can deliver 
emission reductions more quickly and cheaply 


than nuclear power while also providing reliable 
electricity service. Despite decades of generous 
federal subsidies to the nuclear industry, nuclear 
power is not now ready to address the challenge of 
global warming - especially on the short timeline 
required for meaningful action. Piling additional 
subsidies or policy preferences upon the previous 
largesse extended toward the nuclear industry would 
only serve as a dangerous distraction in the fight to 
prevent the worst impacts of global warming. 





Fueled by global warming, a mountain pine beetle infestation has killed 6.5 million acres of forest in the western 
United States. Preventing the most catastrophic impacts of global warming will require rapid and substantial 
cuts in global warming pollution over the next 10 to 20 years. The nuclear industry simply cannot build new 
reactors fast enough to deliver the progress we need. Investing in a new era of nuclear power would divert money 
from more effective solutions. And nuclear power is not necessary for reliable electricity service. 

Photo: iStockPhoto, 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 





40 


America Must Act Quickly to Limit 
the Consequences of Global Warming 


"We are faced with the fact that tomorrow 
is today. We are confronted with the 
fierce urgency of now. In this unfolding 
conundrum of life and history, there is such 
a thing as being too late. Procrastination 
is still the thief of time. Life often leaves us 
standing bare, naked and dejected with 
a lost opportunity. The “tide in the affairs 
of men” does not remain at the flood; it 
also ebbs. We may cry out desperately for 
time to pause in her passage, but time is 
deaf to every plea and rushes on. Over 
the bleached bones and jumbled residue 
of numerous civilizations are written the 
pathetic words: 'Too late'." 

- Martin Luther King, April, 4, 1 967, 

at Riverside Church in New York City 


G lobal warming is rapidly changing 
America's climate, driven largely by 
combustion of fossil fuels for energy. 9 
The country is becoming hotter. 10 Sea level is 
rising. 11 Rainstorms and hurricanes are becoming 
more intense. 12 Landscapes are changing - from 
Western forests ravaged by drought, bark beetles 
and fires, to the degradation of coral reefs along 
the Florida Keys, to shifts in the timing of seasons 
and in the habitable ranges of plant and animal 
species across the country. 13 

Should our emissions of global warming 
pollutants continue unchecked, America and the 
world face catastrophic consequences. Global 
average temperatures could increase by as much 
as 1 1.5° F by the year 2100 (depending on the pace 
of the emissions increase). 14 Sea level could rise 
by as much as 6.5 feet by the end of the century, 
causing extensive coastal flooding. 15 Hurricanes 
could become more severe. 16 And America could 
experience extended periods of hot weather 
and drought, punctuated by heavy downpours, 
interfering with water supplies and agriculture 
and exacerbating smog pollution. 17 

To limit the impacts of global warming, America 
must rapidly and substantially reduce its 
emissions of global warming pollution. The more 
global warming pollution that humanity emits 
into the atmosphere, the greater the warming - 
and the damage - that will become unavoidable. 
Early action will help prevent the worst impacts 
while also allowing greater flexibility to respond 
to an already changing climate, and help lead 
the world toward preserving a livable future. It 
is in this context that we must evaluate potential 
approaches to mitigate global warming and 
focus on those approaches with the greatest 
odds of success. 


Generating Failure 



41 


Global Warming Threatens 
the Health and Well-Being 
of All Americans 

Globa! warming poses a serious threat to the health 
and well-beingof people across America and around 
the world. Global warming is already changing 
America's climate. And if we do not act quickly to 
limit emissions of global warming pollution, the 
consequences could be catastrophic. 

Global Warming Is Rapidly 
Changing America's Climate 

According to the United Nations’ Intergovernmental 
Panel on Climate Change, the evidence that humans 
are altering the earth’s climate is “unequivocal.” 18 For 
example: 

■ Worldwide, temperatures have increased by 
more than 1.4° F since pre-industrial times. 19 

■ The oceans have absorbed 80 percent ofthe extra 
heat in the climate system, causing the water to 
expand. 20 Coupled with melting glaciers, this has 
caused sea levels to rise by about eight inches - 
with the rate of increase accelerating. 21 

■ Hurricanes have become more intense, and 
the frequency of extreme rain and snowstorms 
has increased. 22 

■ At the same time, droughts in many par ts of the 
world have become longer and more severe, 
especially in the tropics and subtropics. 23 

These changes are also affecting the United States. 

■ Rising temperatures are changing the timing 
of the seasons and shifting the habitable area 
for plant and animal species northward and 
higher in altitude across the country. 24 

■ Levels of carbon dioxide are increasing in the 
air as well as the ocean, causing ocean waters 
to become more acidic and contributing to 
the decline of ocean ecosystems, including 


a 50 to 80 percent decline in coral on reefs 
along the Florida Keys. 25 

■ Western forests are being ravaged by 
drought and pine beetles. From the Rockies 
to the Cascades, the pine beetle has killed 
6.5 million acres of forest. 26 Milder winters 
linked to global warming have increased 
winter beetle survival from 10 percent to 80 
percent, allowing the beetle population to 
rise dramatically. 27 Simultaneously, hotter 
summers have weakened the trees’ ability to 
fight off beetles. 28 

If Emissions Continue to Increase, the 
Consequences Will Be Catastrophic 

The more global warming pollution that humanity 
emits, the more serious the consequences. And the 
changes will be largely irreversible for a thousand 
years after emissions stop. 29 

On our current emissions path, humanity risks 
increasing the average global temperature by 10° 
F or more (above the pre-industrial era) by the 
end of this century. 30 Warming on this scale would 
have catastrophic consequences, including: 31 

■ Extinction of as much as 70 percent of all 
species on earth. 32 

■ Acidic “dead zones” in the ocean that could 
endure for thousands of years. 33 

■ The loss of unique ecosystems such as the 
Amazon rainforest. 34 

■ Sea level rise of as much as 6.5 feet in the next 
century, causing extensive coastal inundation 
in areas such as south Florida and Louisiana 
and increasing the risk of storm surge flooding 
in major coastal cities. 35 

■ Continuing sea level rise marching on for 
thousands of years. The Greenland and West 
Antarctic ice sheets could melt, raising sea 
level by 30-40 feet. 36 Ultimately, sea level could 
increase 250 feet, reaching levels associated 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



42 


with the climate at the end of the Eocene era, 
34 million years ago. 37 

■ Widespread drought across as much as a 
third of the globe, straining water supplies 
and agriculture. 38 By mid-century, the 
U.S. southwest could fall into permanent 
drought exceeding even the severity of the 
Dust Bowl era. 39 

■ Extreme heat waves. Peak temperatures 
greater than 120° F could threaten most of the 
central, southern, and western United States 
by the end of the century. 40 

■ More intense hurricanes, driven by warming 
seas. The number of severe category 4 and 
5 hurricanes could increase from 13 to 17 
worldwide per year by 2050. 41 

■ More intense wildfires. By the end of the 
century, wildfires in the West could be five 
times as severe as they are today. 42 Each 
degree in temperature rise could increase 
the area burned in a typical fire by 300 
percent, and more than double the costs of 
protecting homes. 43 

Additionally, the more pollution humanity emits, 
the greater the risk that we will cross a critical 
“tipping point,” accelerating climate change 
beyond human control. For example, melting 
permafrost threatens to release massive quantities 
of methane, a potent global warming gas, from 
decaying material now frozen underground. 
Or, changes such as the current pine beetle 
infestation in Western forests could transform an 
ecosystem from one that absorbs carbon from the 
atmosphere to one that emits carbon. 44 In other 
words, the risk that global warming will cause 
severe, unforeseen and uncontrollable impacts 
increases with every pound of coal or gallon of 
gas that humans burn. 


To Limit the Consequences 
of Global Warming, 

America Must Swiftly and 
Substantially Cut Emissions 
of Global Warming Pollution 

In order to minimize the impacts of global 
warming, America must quickly and dramatically 
cut its emissions of global warming pollution. 

The international community has agreed to work 
to limit global warming to 3.6“ F (or 2° C) above 
temperatures in the pre-industrial era. 45 According 
to current scientific understanding, to have even 
odds of meeting this target, the concentration 
of carbon dioxide in the atmosphere must not 
rise above roughly 450 parts per million (ppm) 
- and perhaps substantially less. 46 (Current 
concentrations are already greater than 380 
ppm. 47 ) Additional limits must be placed on other 
types of heat-trapping gases. 

This means that humanity can only emit so much 
global warming pollution into the atmosphere 
before the odds of limiting the temperature 
increase to 3.6° F become increasingly unlikely. 
This amount is our “carbon budget," or ultimate 
limit on allowable pollution. 

Science makes two critical points clear. The faster 
we cut our emissions, the easier it will be to stay 
within our carbon budget and the less risk we face. 
Early action allows more flexibility to respond to 
an evolving understanding of humanity's role in 
shaping the climate, making a wider variety of 
options available. Correspondingly, the higher 
and later the peak in emissions, the harder we will 
have to work to keep emissions within budget, the 
higher the potential costs, and the greater the risk 
that our options will run out. 


Generating Failure 



43 


Figure 1 : Limiting Total Global Emissions of Carbon Dioxide to 1 Trillion Metric 
Tons From 2000 to 2050 Would Yield a 75 Percent Chance of Limiting Warming 
to 3.6° F (2° C) or Below 5 ' 











44 


Total Emissions Must Not 
Exceed Our "Carbon Budget" 

According to current scientific understanding, 
humanity as a whole can emit no more than a total 
of 3.7 trillion metric tons of carbon dioxide from 
the beginning of our history onward through the 
next 500 years in order to have a 50-50 chance at 
limiting global warming to an average temperature 
increase of no more than 3.6° F (2° C) above the 
pre-industrial era. 48 

Humanity has already emitted more than 1.8 
trillion metric tons of carbon dioxide pollution so 
far. From now (2009) through 2050, we must emit 
less than that same amount again in order to have 
even odds at meeting the international target for 
mitigating climate change. At current emission 
rates, the world is on pace to exceed this "carbon 
budget" in less than four decades - at which time 
we will have committed the world to a future of 
dangerous global warming. 49 

To increase the odds to 75 percent that we will be 
able to limit warming to 3.6° F or below, we will 
have to accept a global carbon budget of 1 trillion 
metric tons of carbon dioxide emissions during 
the first half of this century. 50 (See Figure 1.) 

Scientists note that the target may need to be 
substantially lower, given the likelihood that our 
understanding of human influence on the climate 
will continue to evolve. And even warming of 
3.6° F carries significant consequences and major 
risks for human civilization. 52 Leading climate 
scientists, including Dr, James Hansen of NASA, 
have called for reducing atmospheric carbon 
dioxide below current levels, which would require 
reducing our fossil fuel emissions to zero as quickly 
as possible. Then, we would have to develop and 
deploy methods of removing pollution from 
the atmosphere. 53 In this view, we have already 
exceeded our carbon budget and must act with 
even greater speed. 


Early Action Matters 

The most important thing we can do to address 
global warming, then, is to cut our emissions 
of global warming pollution as quickly and 
sharply as we can, while laying the groundwork 
for future reductions in the years to come. The 
more rapidly we reduce emissions, the less risk 
we assume, and the more room we leave to 
maneuver in later years. 

Recognizing the necessity of swift action, the 
chief of the Intergovernmental Panel on Climate 
Change, Rajendra Pachauri, has called on 
developed nations to ensure that global emissions 
peak no later than 2015. 54 Emissions must then 
fall rapidly thereafter. A large panel of top United 
Nations scientists and Nobel Prize winners has 
called on developed nations to reduce emissions 
of global warming pollution by 25 to 40 percent 
below 1990 levels by 2020. 55 

The world must then continue to slash emissions 
rapidly, achieving cuts of at least 50 percent by 
mid-century, and perhaps substantially more. 56 
Developed countries with the largest capacity 
to act will need to reduce emissions by 80 to 
more than 95 percent. 57 Afterwards, the world 
must then embark on a program to zero out all 
emissions of global warming pollution, and very 
possibly deploy technologies to remove carbon 
dioxide from the atmosphere. 58 

Because carbon dioxide can persist in the 
atmosphere for well over 100 years, the timing 
of emissions is less important than keeping 
overall emissions within the carbon budget. 59 As 
a consequence, if the world is unable to achieve 
deep cuts in global warming emissions by 2020, 
then the world will have to work harder and make 
deeper and faster cuts in emissions before 2050. 

Early action increases the odds that keeping 
emissions within the overall budget will be 
politically and technologically feasible. 


Generating Failure 



45 



Below 2005 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 








46 


The United States Plays a Critical Role 

Because the U.S. is responsible for far more of the 
global warming pollution now in the atmosphere 
than any other country, the degree of emission 
reductions required here will be greater than in 
less-developed countries. 60 

Early Progress Is Most Likely to 
Come from the U.S. Electricity' System 
To meet our goals for limiting the consequences 
of global warming, we must achieve rapid, deep 
and sustained cuts in emissions from the U.S. 
electricity system. For this reason former Vice 
President Al Gore has challenged the United 
States to switch its entire electricity system to run 
on clean energy instead of fossil fuels by 2018, and 



Displacing coal-fired powerfrom the U.S. electricity system is one of 
the most likely sources of early cuts in global warming pollution. 

Photo: Kenn Kiser. 


to ultimately reduce emissions of global warming 
pollution 90 percent by mid-century. 61 

The U.S. electricity system is one of the most 
likely sources of early cuts in global warming 
pollution. About 40 percent of total U.S. carbon 
dioxide emissions come from the generation of 
electricity. 62 About 80 percent of these emissions 
come from coal - despite the fact that coal provides 
just under half of U.S. electricity. 63 Preventing 
the construction of any new coal-fired power 
plants and phasing out the use of coal in existing 
power plants would cut emissions substantially. 
Furthermore, relative to the transportation sector 
with its millions of gasoline-powered engines, 
cuts in the electricity sector will be easier and 
cheaper to obtain in the near term, and may set 
the stage for transitions such as shifting vehicle 
fuel from gasoline to electricity. 64 

There are many low-carbon options for electricity 
generation and broad public consensus on 
shifting America away from its dependence on 
fossil fuels. 65 Resources with the potential to 
deliver emission cuts span the spectrum from 
nuclear power to energy efficiency and from 
carbon capture and sequestration to clean energy 
sources that never run out, such as wind, solar 
and geothermal power. 

Given the importance of quick and effective action 
to reduce America’s emissions of global warming 
pollution, it is crucial that we invest in the options 
likely to deliver the best results. 


Generating Failure 


47 


Nuclear Power Is Not a 
Solution to Global Warming 


N uclear power is not necessary to provide 
reliable, low-carbon electricity for the 
future. Far from being a solution to 
global warming, a major national investment in 
nuclear power would actually set America back 
in its efforts to reduce pollution. Even building 
100 nuclear reactors by 2030 would be too slow 
to make enough of a difference, and too expensive 
compared to other sources of clean, emission-free 
electricity. And that investment - which would 
likely run into the trillions of dollars - would 
foreclose opportunities to invest in other clean 
technologies with the potential to deliver greater 
emission reductions, faster. 

Nuclear Power Is Too Slow 
to Reduce Global Warming 
Pollution in the Near-Term 

Building 100 new nuclear reactors would happen 
too slowly to reduce global warming pollution in 
the near-term, and would actually increase the 
scale of emission cuts required in the future. 

At best, the nuclear industry could have a new 
reactor up and running by 2016, assuming that 
construction could be completed in four years. 
This pace would be faster than 80 to 95 percent 
of all reactors completed during the last wave 
of reactor construction in the United States. 70 If 
construction follows historical patterns, it could 
take nine years after a license is issued before the 
first reactor is up and running - into the 2020s. 

Under this very plausible scenario, new nuclear 
power could make no contribution toward 
reducing U.S. emissions of global warming 
pollution by 2020 - despite the investment 
of hundreds of billions of dollars for the 


construction of nuclear power plants. And even 
if the industry completed 100 new reactors by 
2030, which is highly unlikely, these reactors 
would reduce cumulative power plant emissions 
of carbon dioxide over the next two decades by 
only 12 percent below business as usual, when a 
reduction of more than 70 percent is called for. In 
other words, 100 new nuclear reactors would be 
too little, too late to successfully meet our goals 
for limiting the severity of global warming. 

At Best, No New Reactors 
Could Be Completed Until 2016 

No new reactors are now under construction 
in the United States. The nuclear industry will 
not complete the first new reactor until 2016, 
optimistically assuming construction will take 
four years after regulatory approval. 

From application development to operation, 
the nuclear industry expects that a new nuclear 
reactor would take 10 years to build. 71 

■ Construction cannot begin on any new 
reactors until the U.S. Nuclear Regulatory 
Commission (NRC) approves a reactor 
design and issues a license. This is not likely 
to happen before 2011 or 2012. 

■ Todate, reactor manufacturers have submitted 
plans for three new types of nuclear reactor 
designs for certification. The NRC expects 
official hearings around the suitability of 
these designs to begin in 2010 or 2011, with 
decisions arriving later. 72 One type of reactor 
is already certified through 2012, but then 
must be re-certified. 73 

■ Power companies have submitted applications 
to build and operate 26 new reactors, with 
as many as eight more expected. 74 As of 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



48 



October 2009, the NRC is actively reviewing 
applications for 22 of these reactors. 75 The 
nuclear industry expects this process to take 
up to four years for the first reactors, followed 
by public hearings and a rulemaking. 76 Later 
reactors may take two to three years. 77 

The nuclear industry estimates that construction 
work on a new reactor could be completed in 


Figure 3: Construction Times Were Consistently 
Underestimated During the Last Wave of U.S. 
Nuclear Reactor Deployment 87 


12 


<U 

JE 



v 

cn 

2 

<u 


10 

8 

6 

4 



*■■“ Actual Construction Time 
— - Initial Industry Estimate 


1966-1967 196B-1989 1970-197T 1972-1973 1974-1975 1976-1977 


Year of Construction Start 


four years. 78 If the NRC begins to issue licenses in 
2012, that would imply that as many as three new 
reactors could be online by 2016, with two more 
by 2018. 79 

However, this schedule could very well be too 
optimistic. 

The Nuclear Industry Has 
Consistently Overestimated How 
Fast Reactors Can Be Built 

During the last wave of nuclear power plant 
construction in the United States (from the late 
1960s into the early 1990s), the nuclear industry 
predicted that reactors could be built in 4-6 years. 
However, the average reactor ended up taking 
nine years to complete. 83 In other words, actual 
construction times were almost double projections 
- consistently - across several decades of reactor 
construction work. (See Figure 3.) 

Also notable is the fact that later reactors tended 
to take longer to complete than the first reactors. 
(See Figure 4.) This pattern is the opposite of a 
typical learning curve, where later units often 
can be completed faster and for less cost as an 
industry gains efficiency and economies of scale - 
especially with simple products manufactured in 
high volumes. 84 Nuclear reactors are big, complex, 
and difficult to manufacture in high volumes. In 
addition, many reactor projects suffered from 
unanticipated quality control problems during 
construction. 85 


Generating Failure 







49 


Today, the nuclear industry promises that 
new, standardized designs and technological 
advances will enable reactor construction to 
proceed quickly, without the mistakes of the 
past. 86 However, recent experience with reactor 
construction in Finland and France - two of the 
only active nuclear construction projects in the 
Western world - raise the very real possibility 
that nothing has fundamentally changed. 

A New Generation of U.S. Nuclear 
Reactors Would Likely Experience 
Construction Delays 

A new generation of nuclear reactors in the 
United States would likely face delays that could 
push construction times well beyond four years. 

A reactor now under construction in Finland 
exemplifies this risk. The reactor is now at least 
three years behind schedule after a series of 
quality control failures, and its builder, a French 
government-owned nuclear developer called 
Areva, is no longer committing to a specific target 
date for completion. 89 

The reactor is the first of its kind in the world, 
incorporating advanced design features the industry 
had hoped would facilitate rapid completion and 
keep costs in check. 90 However, the project has 
suffered from delays and cost overruns, much like 
past nuclear reactor projects. 

Areva and its contractors have made a variety of 
costly mistakes during construction. Welds for 
the reactor's steel liner were flawed, and had to 
be redone. Water coolant pipes were revealed as 
unusable. And concrete poured in the foundation 
was suspect, with too much moisture content to 
meet safety requirements. 91 

While the project was initially scheduled 
for completion in summer 2009 (a four-year 
construction time), Areva has scrapped the 

timeline. 92 


As of September 2009, the project is $3.3 billion 
over budget. 93 Areva and the Finnish utility TVO are 
locked in a dispute over who will be responsible for 
the cost overruns. 94 Meanwhile, a coalition of Finnish 
industries estimates that the delays will indirectly cost 
electricity users $4 billion in higher power bills. 95 

The Finnish reactor is not the only nuclear project 
behind schedule. A second Areva reactor being 
built in France is at least nine months behind 
schedule. 96 Project coordinators admitted in 
late 2008 that the project was 20 percent over 
budget. 97 The last four reactors built in France 
took an average of 10.5 years to complete. 98 

If a new generation of U.S. nuclear reactors faces 
delays approaching this scale, it is possible that no 
new reactors could be up and running before 2020. 
While new reactors are under construction, the 
United States would continue to operate existing 
dirty power plants, making it impossible for the 
nation to meet near-term targets for reducing 
global warming pollution. 


Figure 4: During the Last Wave of U.S. Reactor 
Deployment, Construction Duration Tended to 
Escalate OverTime** 


25 


O 



1963 1965 1967 1969 1971 1973 1975 1977 1979 


Date of Construction Start 


How Building Nudear Power Plants Would Set America Back in the Race Against Global Warming 



50 


Ffre Amemm Nutimr Industry Is Met Ready to Mo, re Quickly 



yiT-VK.TZi&i 
l : j :} ViSi ££ 

•ais-t-irilit-g i-sS:;-. Zudzs? fchsSS 
:fcif£feU:i?fcJ :i t53.b 

L.-si:« J :>• s' inj-L's-t- «? ScjMlM 

- - * _• rrj. rr=. r 

•Oftff f.hir FeCffli in ;fe§?a& jteg 

HiRsK&Ki-S iaa-jgdfir tea fe^s. ^ tbs- 


j rH-f MSS. 



bis utl nuMrsa ssis .a Lars-r 

- • -n.fr : T- • ? s s-. 

:Lsh £ iralna-d Wi&khzxS: 

EtHfs. •■•■. IrX-vAr^M:. l-T.-lTV.n 

bar •LaaiTsgrKa-HHtrt fiirrnrkm. 

iib: -- <Hs - ~-~ 

zrts-i.nr fx&gBtisk J.z lEiss 

ft. S ft f,i Ml H f --*• 


Figure 5: Projected Cumulative Electric Sector 
Emissions of Global Warming Pollution after 2010 
with No Action or 1 00 New Reactors Built by 2030 



Nuclear power is too slow to deliver enough pollution cuts in 
the next two decades. Even if the nuclear industry managed to 
complete 100 new reactors in the United States by 2030, nuclear 
power could still only reduce total electric sector emissions 12 
percent below forecast levels by 2030, leading to a higher and later 
peak in emissions. As a result, America would exceed its 2010 - 
2050 power plant emissions budget by 2025 - 25 years too early to 
meet our goals for reducing the severity of global warming. 


Even Without Delays, the Nuclear 
Path Is Too Slow to Keep Global 
Warming Emissions Within Budget 

Even with generous assumptions about speed 
and effectiveness, building 100 new reactors in 
the United States by 2030 will not reduce global 
warming pollution fast enough to keep our 
carbon emissions within budget - and therefore 
not fast enough to meet our goals for limiting the 
consequences of global warming. 

First, assume that the nuclear industry can 
deliver on its ambitious timelines and successfully 
complete 100 new reactors (about 100 gigawatts 
of generation capacity) in two decades. Then, 
assume that every kilowatt-hour of nuclear power 
would displace coal, the largest source of carbon- 
intensive power generation. Finally, assume 
that next-generation nuclear reactors operate 
at an average of 90 percent of full capacity - an 
upper-bound estimate from a group of nuclear 
technology experts. 106 Under these best-case 
conditions, building 100 active nuclear reactors 
could prevent more than 750 million metric 
tons of carbon dioxide (MMTC0 2 ) pollution in 
2030. Overall power plant emissions would be 20 
percent below 2005 levels. 


Generating Failure 



51 


However, these nuclear reactors would not be ■ 
able to reduce emissions while they are under 
construction. In other words, the nuclear path 
delivers a late start in cutting pollution. As a 
result, building 100 new reactors could only 
reduce cumulative power plant emissions of 
global warming pollution by 12 percent over the 
next two decades compared to doing nothing. 

(See Figure 5.) On this path, America would still 
exceed its 2010-2050 electric power emissions 
budget by 2025 - 25years too soon. (See “Setting 
a Carbon Budget for the United States” on page 13 
for a brief explanation of the source of the budget 
line represented in Figure 5.) 8 

In conclusion, building 100 new nuclear reactors 
by 2030 would be too little, too late when it comes 
to preventing global warming pollution. By leading 
to a higher and later peak in emissions, using 
nuclear power as a primary strategy to address 
global warming would ensure that the United 
States exceeds its 2010-2050 power plant emissions 
budget. As a result the nuclear path would cut into 
what little margin of error we have, increasing the 
risk of catastrophic global warming. 

Clean Energy Solutions Can 
Reduce Pollution Much Faster 
Than 100 New Reactors 

Clean energy solutions have a significant 
advantage over nuclear power when it comes to 
reducing global warming pollution. Individual 
clean energy measures are small - as simple as 
installing a new light bulb in a home or erecting 
a single wind turbine. Small means fast. Millions 
of individual workers could participate in a clean 
energy transition at the same time. And many 
individual clean energy measures can add up to a 
rapid, large-scale cut in emissions. 

Energy Efficiency and Clean Energy Measures 
Can Be Deployed Quickly 

Individual energy efficiency and clean energy 
measures can be implemented in a matter of 
minutes to just a few years. Each individual " 
measure delivers results right away. For example: 


Designing and building a super energy- 
efficient building requires little to no extra 
time compared to the effort required to 
build and design a standard building. Simple 
changes in design and construction can yield 
homes, institutions, and commercial buildings 
that use 70 percent less energy than standard 
structures. 107 Adding small-scale clean energy 
systems - solar photovoltaic panels or small 
wind turbines, for instance - can yield buildings 
that produce as much energy as they consume 
over the course of an entire year. 

Retrofitting an existing structure to achieve 
higher energy performance can take a matter 
of days to months to a few years. Contractors 
can weatherize an existing home in an average 
of three days. 108 Installing a home solar 
photovoltaic system typically takes less than 
a week. 109 Larger businesses or institutions 
can upgrade lighting, heating and cooling 
equipment, or mechanical systems in a matter 
of months to just a few years. 110 

With available transmission infrastructure, 
today’s power companies can build a utility- 
scale wind farm in as little as one year, and a 
concentrating solar thermal power plant in as 
littleas two to threeyears after groundbreaking . 1 1 1 
The components of these systems are largely 
modular. Making a bigger wind farm simply 
requires installing more wind turbines, and 
making a larger solar power plant basically 
requires installing more mirrors or more steam 
turbines. The modular and scalable nature of 
construction makes projects simple relative to 
traditional coal-fired or nuclear power plants, 
and better able to take advantage of economies 
of scale. Wind, concentrating solar thermal, and 
geothermal energy, however, must be integrated 
into the transmission grid. Projects that require 
major new power lines to be built could take 
longer to complete. (See “The Importance of 
Grid Modernization” on page 20.) 

Production of large amounts of energy efficient 
products and renewable energy technologies 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 









53 



three new nuclear reactors. 119 Wind energy 
experts predict that wind will become the 
dominant source of new electric generating 
capacity in 2009-2012, with 36,000 to 40,000 
MW installed (the energy equivalent of 10-12 
new nuclear reactors). 120 

■ The concentrating solar power industry is 
actively installing facilities in the southwestern 
United States, with 8,500 MW of generating 
capacity expected to be online by 20 14. 121 This 
capacity is the rough energy equivalent of two 
to three nuclear reactors. 122 Rooftop solar 
photovoltaic panels are booming as well, with 
California alone on pace to install 3,000 MW 
by 2017. 123 


With the Capital Investment 
Required to Build 100 Nuclear Reactors 
in the Next Two Decades, Clean Energy 
Could Deliver Double the Impact 

Through 2030, investing in clean energy could 
deliver double the impact of a comparable 
investment in nuclear power. The speed at which 
small, modular clean energy measures can be 
deployed means that capital invested in clean 
energy can begin preventing pollution right 
away, making a bigger overall difference in the 
next two decades. 

Cost estimates for new nuclear reactors vary 
widely, since none have been built in the U.S. in 
more than 30 years. 129 The U.S. Department of 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



54 


Energy has put forward one of the most optimistic 
forecasts of possible nuclear reactor costs over the 
next two decades, projecting that the capital cost 
of reactor construction could be as low as $2,400 
per kilowatt (kW) by 2030 (in 2007 dollars). 130 
(Many independent experts find this estimate 
implausible. 131 ) However, even if building a nuclear 
reactor turns out to be this inexpensive and quick, 
100 new nuclear reactors by 2030 could - at best - 
prevent the same amount of pollution as investing 
that same capital into clean energy solutions such 
as energy efficiency. (See Figures 6 and 7.) 

On the other hand, if building a new nuclear 
reactor turns out to be an expensive and time- 


Figure 6: Potential Reduction in Total Electric 
Sector Emissions of Global Warming Pollution, 
2010-2030, from 100 New Reactors Built by 
2030 vs. an Equivalent Capital Investment in 
Clean Energy 


Ol 

f § 

20,000 

15,000 

$ 6 - 


evented Global 
Emissions, 201 
(MMTCOj 

10,000 

5,000 

a 

0 



100 Nuclear Reactors by Equivalent Capital 

2030 Investment in Clean Energy 


Investing in clean energy can deliver greater progress, faster, than 
a comparable investment in nuclear power. Building 100 new 
nuclear reactors by 2030 could prevent about 6 billion metric tons 
of carbon dioxide pollution. However, putting that same capital 
investment into clean energy solutions instead would prevent 6 
to 13 billion metric tons of pollution (with the range representing 
uncertainty over how much a new nuclear reactor would cost, since 
none have been built in the United States in more than 30 years). 


Comparing Nuclear 
Cmtisiimatm 



M.“ :: d" STS S f ■: v 3 rp=:::r iT: =.?f I hi: E'C-H-l F.s!' riS-SisliSta t j 

pfasnssssi gfesH iisi lll’F Mich hjjjji&i; .!ji$i|.K!i!>& j 
pj-TSrST; ■ vigiiSS: . - . i : ; ; j 

a - r-*,T . =«• = -&- j-p<-, r * It filli 

final pHLpiS: iSih 


consuming endeavor, like many reactors built in 
the 1970s, reactors could cost as much as $10,000 
per kW (2008 dollars). 132 Putting that level of 
capital investment into energy efficiency and 
renewable energy technologies instead would 
prevent three times as much pollution by 2030. 
(See Figures 6 and 7.) 

At a mid-range reactor cost estimate of $6,250 per 
kW (2008 dollars), putting an equivalent investment 
into energy efficiency and renewable energy would 
prevent twice as much pollution by 2030 as building 
100 new reactors. 133 (See Figures 6 and 7.) (See the 
Methodology section for more details.) 

To Keep Power Plant Emissions Within 
Budget, America Will Have to Do Much More 

Power plant emissions are on pace to exceed 
the U.S. power sector emission budget by 2024 
with no further action. To keep emissions from 
exceeding this budget, the nation must respond 
swiftly and decisively. 

In the next two decades, clean energy 
deployment equal to the capital investment in 
100 new nuclear reactors could reduce global 


Generating Failure 



55 


warming pollution by 6 billion to 18 billion 
metric tons of carbon dioxide - 11 to 35 percent 
below forecast levels. However, even this level 
of clean energy deployment that would not be 
enough to keep U.S. power plant emissions 
within budget. (See Figure 7.) America will 
have to do much more to reduce power plant 
emissions within the next 20 years to limit the 
worst consequences of global warming. 

Keeping power plant emissions within this 
budget would require reducing emissions by 


more than half in the next 10 years, and then 
reducing emissions by 95 percent by mid- 
century. Achieving progress on this scale will 
require a level of effort approaching that called 
for by Al Gore when he challenged the nation to 
end its dependence on fossil fuels for electricity 
generation within a decade. 134 

Quick Action Through Clean Energy Can 
Demonstrate International Leadership 

If the United States chooses nuclear power as its 
primary strategy to reduce emissions of global 


Figure 7: Projected Cumulative Electric Sector Emissions of Global Warming 
Pollution after 2010 with No Action, 1 00 New Reactors Built by 2030 or an 
Equivalent Capital Investment in Clean Energy 

60,000 

Reference Case 



2010 2015 2020 2025 2030 

Clean energy solutions can deliver results faster than nuclear power. With the up-front capital investment 
required to build 100 new nuclear reactors, America could achieve twice as much by investing in clean energy 
instead. (Given the wide range of uncertainty over the cost of a new nuclear reactor, clean energy could at least 
equal the performance of new nuclear power by 2030, and at most perform three times better. See the shaded 
wedge in the figure above.) However, even this level of clean energy deployment would not be enough to keep 
U.S. power plant emissions within budget. America will have to do much more to reduce power plant emissions 
within the next 20 years to limit the worst consequences of global warming. 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 




56 


warming pollution, it is likely that the nation 
would have little or nothing to show for it in terms 
of real emission reductions from the electric 
power sector in the next 10 years. The failure of 
the United States to demonstrate real emission 
reductions would erode U.S. leadership in 
addressing global warming and likely reduce the 
international community's appetite for action. 

We need other countries across the world to act 
rapidly and forcefully alongside the United States in 
order to have a chance at limiting global warming to 
3.6° F above the pre-industrial era - thus controlling 
the severity of global warming impacts. 

Showing a commitment to urgent action by 
adopting a clean energy path, however, could 
demonstrate more U.S. leadership, bringing the 
international community closer to achieving an 
ambitious, binding and firm agreement to fight 
global warming. Urgent action to deploy clean 
energy can also help America take a leadership 
role in building a clean technology and clean 
energy economy. 135 

Choosing to Build New 
Reactors Would Divert 
Resources from More Cost- 
Effective Strategies 

Choosing to build new reactors would divert 
resources from more cost-effective strategies. 
Building 100 new nuclear reactors could have an 
up-front cost on the order of $600 billion (with 
a possible range of $250 billion to $1 trillion). 136 
Investing this money in reactor deployment 
would foreclose opportunities to pursue cheaper 
and faster options. 

New nuclear reactors would be far more costly 
than other forms of emission-free electricity. 
Even the most optimistic estimates for the 
average cost of power from a new nuclear reactor 
are 300 percent higher than the cost of energy 


efficiency or the cost of co-firing biomass in an 
existing power plant, and well above renewable 
technologies like wind power. Moreover, any 
new nuclear reactors won't be operational until 
well into the next decade, whereas clean energy 
sources can be deployed now. 

The cost advantages that clean energy has over 
nuclear power are likely to become even more 
pronounced over time, while we wait for the nuclear 
industry to finish its first new reactor. According to 
Moody’s Investor Service, “...nuclear generation has 
a fixed design where construction costs are rising 
rapidly, while other renewable technologies are still 
experiencing significant advancements in terms of 
energy conversion efficiency and cost reductions." 137 

Building 100 New Nuclear Reactors 
Would Divert Resources from 
Cheaper and More Effective Solutions 

If both nuclear power and clean energy 
technologies such as renewable energy and 
energy efficiency improvements can reduce global 
warming pollution, why can’t we just pursue both 
paths - reducing emissions now through clean 
energy and in the future with nuclear? 

In a world of unlimited resources, such a path 
would be conceivable. But in the real world of 
public policy, governments must make choices 
about how to allocate limited resources. Moreover, 
to retain public support for efforts to reduce global 
warming pollution, government will need to 
demonstrate that it is acting in ways that minimize 
the costs of emission reductions and deliver the 
greatest benefit for the smallest expenditure. 

Recent estimates for the up-front cost of building 
a new nuclear reactor suggest that building 100 of 
them could require an up-front investment on the 
order of $600 billion. 138 

However, the capital cost of a new nuclear plant is 
only part of the full story. Any up-front investment 
in nuclear power would lock in additional 
expenditures across decades. Once a plant is 


Generating Failure 



57 


built, the price of the electricity it generates will 
reflect the ongoing need to pay off debt; the 
cost of operating and maintaining the plant; the 
cost of fueling the plant with uranium; the cost 
of decommissioning the plant and disposing 
of the waste; and the cost of transmitting and 
distributing the electricity to consumers. For 100 
reactors, these costs would add up to additional 
trillions over a period of decades. 

An investment in energy efficiency would deliver 
vastly superior results. Investing in energy 
efficiency actually pays us back with ongoing 
savings on electricity bills. Efficiency measures 
are almost always cheaper even than operating 
existing power plants. For example, analysts 
at the consulting firm McKinsey & Company 
estimate that investing $520 billion in energy 
efficiency measures would eliminate $1.2 trillion 
in waste from the U.S. economy, saving citizens 
and businesses nearly $700 billion (in net 
present value terms). 139 In other words, energy 
efficiency could provide the same level of impact 
as building 160 nuclear reactors in the next ten 
years - at net savings. 140 

An investment in renewable sources of power 
can deliver carbon-free electricity for much 
less cost than nuclear power. Many types of 
renewable energy have the advantage of zero 
fuel costs, since wind and sunlight and the 
earth's heat are free. Other types of clean 
energy, such as solar photovoltaic panels, have 
the advantage of being located near where the 
energy will be used, minimizing the cost of 
transmitting and distributing electricity. And 
these technologies require no special waste 
handling or decommissioning. 

Compared to clean energy solutions, nuclear 
power is extremely expensive. The total extra 
cost to the U.S. economy of building 100 new 
nuclear reactors, above and beyond a least-cost 
dean energy approach, could fall in the range of 
$1.9 to $4.4 trillion over the entire lifetime of the 
reactors. 141 


"The failure of the U.S. nuclear power program 
ranks as the largest managerial disaster in 
business history, a disaster on a monumental 
scale. The utility industry has already invested 
$125 billion in nuclear power, with an 
additional $140 billion to come before the 
decade is out, and only the blind, or the biased, 
can now think that the money has been well 
spent. It is a defeat for the U.S. consumer and 
for the competitiveness of U.S. industry, for the 
utilities that undertook the program and for the 
private en terprise system that made it possible." 

"Nuclear Follies,” a cover story in 
Forbes Magazine, February 1 1, 1 985. 


Cost Estimates for Nuclear Power Continue to Rise 

In 2003, experts at the Massachusetts Institute of 
Technology and Harvard concluded that "today, 
nuclear power is not an economically competitive 
choice.” 142 The researchers predicted that without 
subsidies and financial support for the nuclear 
industry, "nuclear power faces stagnation and 
decline.” 143 The U.S. Congress responded by 
streamlining the permitting process at the Nuclear 
Regulatory Commission and authorizing billions 
in new subsidies through the 2005 Energy Policy 
Act. However, in 2009, the MIT researchers 
took another look at the nuclear industry and 
found that despite the new support, "increased 
deployment of nuclear power has been slow both 
in the United States and globally ....” 144 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



58 


High costs are a major obstacle in the way of 
building new reactors. In the past decade, cost 
estimates for new nuclear power plants have 
only escalated. 

In the early 2000s, nuclear industry executives 
estimated that construction costs for building a 
new nuclear reactor could approach $1 ,500 per kW 
of power generating capacity, plus finance costs. 145 
They said the lower costs would make nuclear 
power competitive with coal and natural gas. 

However, these early estimates have turned out 
to be overly optimistic. Recent estimates for the 
average cost of electricity from a new nuclear 
plant over its entire lifetime are four times higher 
than this initial projection that promoters of a 
"nuclear renaissance” put forward in the early 
part of the decade. 146 


more than seven times higher than cost estimates 
from early in the decade. 147 Areva offered its 
technology for $23 billion - or $7,400 per kW 
- but its bid was deemed non-compliant, likely 
because it would not guarantee the price. 148 
Both of these quotes were more than double the 
threshold for competitiveness. 149 

Nuclear Reactors Tend to Run Aground on 
Skyrocketing Construction Costs 

High and escalating bids for new nuclear reactor 
projects should not be a surprise. Nuclear reactor 
construction projects in the U.S. have regularly 
run aground on skyrocketing construction costs. 
Of 75 nuclear reactors completed between 1966 
and 1986, the average reactor cost more than 
triple its original construction budget. 150 Later- 
built reactors came in as much as 1,200 percent 
over budget. 151 


No nuclear companies have signed a contract 
guaranteeing a price for a new nuclear reactor. 
When Canada asked for guaranteed cost bids 
to build two new reactors, the results blew far 
past expectations. The only company willing to 
guarantee its work quoted a price of $26 billion 
to build two new reactors - or $10,800 per kW - 


Figure 8: Actual Capital Costs of Completed 
U.S. Nuclear Reactors (in 2004 Dollars)’ 53 


$14,000 
$12,000 
O M $10,000 

u «. 

_ « 

.t: 7 58,000 

a j- 
« J2 

U -Q $6,000 

15 

2 © $ 4,000 

c et 

— $2,000 
so 




❖ * 
ft 
t 

L 


1965 1970 1975 1980 1985 1990 

First Year of Operation 


1995 2000 


Economists commonly expect that new products 
and technologies become cheaper over time, 
as companies gain experience and develop 
economies of scale. However, in the case of the 
last generation of nuclear power in the United 
States, the opposite proved to be true. The first 
nuclear reactors ever built were among the least 
expensive, while costs spiraled wildly out of control 
in the final decades of reactor construction, (See 
Figure 8.) For plants beginning operation in the 
late 1970s and onward, inflation-adjusted capital 
costs escalated from just under $2,000 per kW to 
more than $10,000 per kW (in 2004 dollars). 152 

Seen through the lens of history, nuclear industry 
predictions that new designs and modular 
construction techniques will bring costs down 
appear overconfident. 154 Developing new nuclear 
power plants will likely remain prone to high cost 
"surprises” and increased financial risk for power 
companies and their customers. 155 Due to the large 
amount of money required to build an individual 
reactor, the investment ratings firm Moody’s calls 
nuclear construction a “bet the farm risk" for a 
typical utility. 156 


Generating Failure 



59 


Nuclear Power Is More 
Costly than Other Forms of 
Emission-Free Electricity 

Power from a new nuclear reactor would be 
more costly than other forms of emission-free 
electricity. Recent estimates for the average cost 
of electricity from a new nuclear power plant over 
its entire lifetime range from a low of 8 cents to 
a high of 30 cents per kilowatt-hour (kWh), with 
the bulk of estimates failing between 12 and 20 
cents per kWh, 157 For many of these estimates, 
add another 2 cents per kWh to transmit and 
distribute the electricity from the nuclear plant to 
the customer. 

Vast amounts of dean energy are available - now 
- at far less cost. 158 

■ Energy from a new nuclear reactor would be 
two to six times more expensive than saving 
electricity through efficiency - including 
utility and consumer investment. Across 
the country, the average utility cost of saved 
energy is 2.5 cents per kWh, three to four 
times cheaper than building any kind of 
new power plant. 159 Including consumer 
contributions to efficiency measures, the 
average total resource cost of efficiency is 
around 4.6 cents per kWh. 160 Analyses of 
future energy efficiency potential typically 
find vast available resources with average 
utility lifetime costs of around 4 cents per 
kWh in the residential sector and 2 cents per 
kWh or less in the commercial and industrial 
sectors. 161 Moreover, as the scale and scope 
of energy efficiency programs increase, they 
tend to become even more cost effective. 162 

■ Combined heat and power and recycled 
energy technologies are also extremely cost- 
effective sources of electricity. Recycled 
energy technologies can generate electricity 
for about 3 cents per kWh. 163 Combined cycle 
industrial heat and power installations can 
generally produce power for 4.5 to 5.5 cents 
per kWh, including credit for the value of 


useful heat that the generators also produce. 164 
And smaller building-scale CHP technology 
can deliver electricity for less than 6 cents per 
kWh, again counting the value of the useful 
heat also produced by the generator. 165 

■ Energy efficiency, distributed solar power, 
and combined heat and power have the added 
advantage of saving or generating energy near 
where it will be used, avoiding transmission 
and distribution costs, In addition, saving or 
generating energy locally minimizes electricity 
losses that can occur while transporting 
electricity from a distant power plant. 

Large potential supplies of clean energy from 
wind, solar, biomass and geothermal sources are 
also available - now - at costs well below estimates 
for new nuclear power. For example: 

■ America’s entire electricity needs could be met 
by the wind blowing across the Great Plains or 
the sunlight falling on a 100 mile square patch 
of the desert Southwest, or a tiny fraction of 
the natural heat just beneath the surface of 
the earth anywhere across the country. 166 
Diverse, locally-based resources are available 
in every state. Even the southeastern United 
States has enough biomass, wind, and low- 
impact hydroelectric resources to meet 25 
percent of its electricity needs within the next 
two decades. 167 

■ The U.S. Department of Energy (DOE) 
estimates that wind energy resources across 
the U.S. as a whole could produce more than 
1.5 million GWh per year for between 6 and 
10 cents per kWh (2006 dollars). 168 (This 
price includes estimated transmission costs, 
assuming that the existing grid has 10 percent 
spare capacity that could be used for wind, and 
that appropriate planning will allow new lines 
to be constructed as needed.) This amount 
of wind would be the energy equivalent of 
190 nuclear reactors. 169 DOE estimates that 
generating 20 percent of America's electricity 
supply with wind by 2030 would cost the 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



60 


average household just 50 cents per month 
more compared to sticking with coal- and 
gas-fired power - and excluding the benefits 
of cleaner air and conserved water. 170 

■ The California Public Utilities Commission 
estimates that in the western United States: 571 

♦ Nearly 200,000 G Wh per year of renewable 
electricity could be delivered locally for 9 
cents per kWh or less; 

♦ An additional 200,000 GWh per year of 
renewable electricity could be locally 
delivered at costs of 10 cents per kWh or 
less; and 

♦ Well over 500,000 GWh per year of 
additional renewable electricity could be 
delivered locally at a cost of 12 cents per 
kWh or less. 

Electricity from these renewable resources - the 
energy equivalent of more than 1 10 nuclear reactors 
- would be available at 8 to 12 cents per kWh 
delivered, half to two-thirds of a mid-range estimate 
for the cost of power from a new nuclear power 
plant. 172 Developing U.S. renewable energy and 
energy efficiency resources could save Americans 
more than $200 billion on energy bills by 2020. 173 


Research done for the California Energy 
Commission (CEC) in 2009 provides a relatively 
recent, apples -to -apples comparison of the 
estimated costs of different gene ration technologies 
with an in-service date of 2018, a decent guess as 
to when the first nuclear reactors might become 
available. 175 The estimates are partially specific to 
western states, and include the effects of some tax 
and incentive policies now authorized through that 
year (but not the renewable energy production tax 
credit, which is currently set to expire by 2013). 
These factors aside, the research gives a general 
idea of how generation technologies stack up. 
Many additional studies, using different starting 
assumptions, support the conclusion that energy 
efficiency and many forms of renewable power are 
expected to be substantially more cost-effective 
than nuclear power. 170 

The CEC figures also exclude solutions like energy 
efficiency, biomass co-firing and combined heat 
and power, so this report draws on other sources 
to include them. Finally, this report does not 
consider possible intermediate solutions such as 
replacing coal-fired power with greater utilization 
of existing natural gas-fired power plants, which 
are also likely to be more cost-effective ways to 
prevent carbon emissions than building new 
nuclear plants. 


Per Dollar Spent, Clean Energy 
Is More Effective at Preventing 
Pollution than New Nuclear Power 

In at least the next six years, new nuclear power 
cannot be obtained in the United States at any 
price. However, many other energy technologies 
are available now that can deliver cost-effective 
reductions in pollution. Recent estimates for 
the cost of a new nuclear power plant place it 
well above many alternatives, including energy 
efficiency, combined heat and power, wind power 
(on land and off shore), biomass, landfill gas, 
geothermal, some types of solar thermal power 
and natural gas combined cycle power. 174 


In 2018, the CEC projects that new nuclear power 
will be more costly than most other forms of low- 
emission electricity, whether financed by a public 
utility, an investor-owned utility, or a merchant 
generator. 177 Under investor-owned utility 
financing, per dollar spent (over the lifetime of 
the technology), energy efficiency would be five 
times more effective at preventing global warming 
pollution, and combined heat and power (in 
which a power plant generates both electricity 
and heat for a building or industrial application) 
would be greater than three times more effective. 
(See Figure 9.) Even without the benefit of 
the production tax credit in 2018, biomass, 
geothermal and land-based wind energy will be 


Generating Failure 



61 


more than twice as effective, and offshore wind 
will be on the order of 40 percent more effective. 
Under merchant financing terms, nuclear fares 
even more poorly, with CEC expecting both solar 
thermal and solar photovoltaic power to be more 
cost-effective ways to reduce pollution. 


By 2018, solar photovoltaic power should be 
comparable to a new nuclear reactor in terms of 
its per-dollar ability to prevent global warming 
pollution. However, solar power is falling in price 
far faster than any other generation technology. 
Solar prices have fallen by more than 80 percent 


Figure 9: Comparative Ability of Electricity Technologies to Prevent Global 
Warming Pollution, per 201 8 Dollar Spent over Technology Lifetime- Online in 
201 8, Merchant Financing Terms 178 


c 

o 


14 


> 

0> 

Q- 

C 

o 


o 12 

o 

GO 


o 

Q. 

u> 

c 


i 

■Jo 

-Q 

_o 


10 


ai 

a 

N 

o 

u 

o> 


{ 

• II i 

I S| tii 

llll 

'•■i ; i I 

■ 

S V ■ 

^ ^ cl 

/V./ ^ 


■ 11 11 

(KHSH jggigg _ 










CP 


I 

I 

I 

I 

I 

i 



I 



By 2018, a reasonable estimate for the first date a new reactor could be online, nuclear power will be among the 
least cost-effective options for reducing global warming pollution. Per dollar spent, nuclear power would be less 
effective than other low- or zero-emission energy solutions. Efficiency, combined heat and power, wind power, 
geothermal energy, biomass combustion, small scale hydropower and offshore wind all outperform nuclear. 
(For simplicity, this figure assumes that power from these new sources at scale would displace an average unit 
of electricity from the existing U.S. electricity grid. Error bars represent a possible range of values for each 
technology, given the range of resource quality and location, and uncertainty around cost estimates. See the 
Methodology section for more details.) 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



62 


since 1980. J79 And prices continue to decline as 
public policies encourage growth in capacity 
for solar panel manufacturing, distribution 
and installation. 180 Recent cost improvement is 
apparent in utility decisions to build nearly 1,000 
MW of large-scale solar photovoltaic power 
plants in Florida and California - 10 times bigger 
than any now in service across the world. 181 

In fact, recent analysis by the investment firm 
Lazard implies that thin-film solar photovoltaic 
and solar thermal power technologies, with 
existing incentives, are already competitive with 
and even ahead of nuclear power. 182 Lazard also 
highlights biomass co-firing - in which an existing 
coal-fired power plant replaces up to 15 percent 
of its typical fuel with plant matter - and landfill 
gas as additional cost-effective options. 183 

The fact that clean energy is more cost-effective than 
new nuclear reactors is reflected in the conclusion 
of a recent report by the European Renewable 
Energy Council, the German Aerospace Center and 
Greenpeace, which shows that currently available 
clean energy technology could be deployed in 
the United States to deliver massive reductions 
in global warming pollution - at half the cost 
and with twice the job creation as an equivalent 
amount of nuclear and coal-fired power. Similarly, 
the non-profit Nuclear Policy Research Institute 
and the Institute for Energy and Environmental 
Research have published a report demonstrating 
how the United States can create an economy with 
zero emissions of global warming carbon dioxide 
pollution within 30 to 50 years at a reasonable cost, 
without nuclear power. 184 

What Could an Equivalent Capital 
Investment in Clean Energy Achieve? 

Investing $600 billion could potentially get us 100 
new nuclear reactors by 2030. Alternatively, if we 
invested that money in clean energy solutions, 
we could get the double the impact, without the 
drag on the economy that the high cost of nuclear 
power would impose. 


At an optimistic reactor cost forecast used 
by the Energy Information Administration of 
around $2,500 per kW of capacity (see page 
22), building 100 new reactors would cost $250 
billion up-front. Investing that same amount 
of capital in energy efficiency could reduce 
Americas electricity consumption by about 12 
percent below the reference case by 2030. 185 
This level of investment in energy efficiency 
would deliver emission reductions equal to 
building 100 new nuclear reactors by 2030, but 
unlike nuclear, pollution prevented through 
efficiency would come at net savings, since 
energy efficiency is so much more cost-effective 
than building new reactors. 

At mid-range costs of around $6,500 per kW, 
near those forecast by Moody’s and comparable 
to recently proposed reactors, building 100 
nuclear reactors would cost $650 billion. 186 
Directing $590 billion of this capital investment 
to efficiency measures could capture a large 
fraction of America’s identified potential for 
electric energy efficiency, reducing electricity 
consumption by 25 percent below business 
as usual by 2030. The remaining money could 
purchase enough wind turbines and other 
renewable energy equipment to generate 
an additional 130 billion kWh by 2030, 187 
Altogether, this package of clean energy would 
yield as much energy as more than 170 nuclear 
reactors in 2030. 188 This package of clean energy 
would reduce twice as much pollution as nuclear 
through 2030, with net savings on electricity 
costs - which nuclear power cannot offer. 

Should the highest cost forecasts for nuclear 
power come true, building 100 new reactors could 
cost $1 trillion. This level of investment in clean 
energy solutions could yield as much electricity 
as more than 270 new nuclear reactors in the 
year 2030. 189 This package of clean energy would 
reduce three times as much pollution as nuclear 
through 2030, for far less total cost. 


Generating Failure 



63 


Nuclear Power Is Not 
Needed to Provide 
Reliable, Low-Carbon 
Electricity for the Future 

Proponents of nuclear power often make the 
claim that nuclear reactors are necessary because 
they are a source of emission-free “base-load" 
electricity which “must run uninterrupted night 
and day” in order to ensure the reliability of 
electric service. 391 

Patrick Moore, a public relations consultant 
working on behalf of the nuclear industry, summed 
up the argument, writing in the Washington Post 
in 2006: 192 

“Nuclear energy is the only large-scale, 
cost-effective energy source that can 
reduce [global warming] emissions while 
continuing to satisfy a growing demand for 
power... Wind and solar power have their 
place, but because they are intermittent 
and unpredictable they simply can't 
replace big base-load plants such as coal, 
nuclear and hydroelectric. Natural gas, a 
fossil fuel, is too expensive already, and 
its price is too volatile to risk building big 
base-load plants. Given that hydroelectric 
resources are built pretty much to capacity, 
nuclear is, by elimination, the only viable 
substitute for coal. It’s that simple... Every 
responsible environmentalist should 
support [nuclear power].” 

Were nuclear power to be "the only viable 
substitute for coal,” it would indeed be difficult for 
any “responsible environmentalist" to oppose it - 
even with the astronomical cost, the long timelines 
for construction, the risks posed by weapons 
proliferation and accidents, the environmental 
impacts of uranium mining and nuclear plant 
operation, and the still unresolved dilemma of how 
to safely and responsibly transport and manage 
the highly radioactive waste over millennia. 


"/ think base-load capacity is going to become 
an anachronism.” . . . "We may not need any 
[new nuclear or coal plants], ever." 


-Jon Wellinghoff, Chair of the Federal Energy 
Regulatory Commission, speaking to reporters at 
a U.S . Energy Association forum, April 22, 2009.' 90 


But nuclear power is not an indispensible source 
of carbon-free electricity. It is not needed to meet 
“growing power demand" in a world where cost- 
effective energy efficiency opportunities abound. 
“Large scale” power plants are as much of a curse 
as they are a blessing in running a well-functioning 
electric grid. And alternative clean energy 
sources are fully capable of replacing coal-fired 
power plants - particularly if we make necessary 
investments to improve the electric grid. 

The Myth: Nuclear Plants Are 
Needed to Produce Base-Load Power 
Nuclear power proponents often argue that 
nuclear power is among the only practical 
sources of low-carbon “base-load” power, giving 
it a supposedly irreplaceable role in a low-carbon 
future. In other words, nuclear power may cost 
more and may be considered less desirable by the 
public than clean energy technologies, but we 
must accept it in order to keep the lights on in 
the future without triggering dangerous global 
warming. 

To understand why these claims do not hold 
water, it is necessary to take a step back and look 
at how we produce and use power in the United 
States. Demand for electricity varies a great deal 
from hour to hour and from season to season. 
In the Mid- Atlantic region in 2008, for example, 
the amount of electricity required at 5 p.m. on a 
hot June afternoon was nearly three times greater 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



64 








65 


than the amount of electricity used at 5 a.m. on a 
temperate May morning. 193 

Base load, therefore, is that slice of power demand 
that must be satisfied day or night, across all the 
seasons. 

Power is supplied to the grid by a variety of 
different generating technologies, each with 
its own characteristics. Nuclear and coal-fired 
power plants have typically been assigned to meet 
the base load - in part because they have been 
the cheapest to run (and will therefore always be 
the first plants dispatched to the grid) and in part 
because they are physically unable to be turned 
on and off at the flick of a switch. Restarting a 
nuclear plant, for example, is a days-long process. 
Because of these characteristics, nuclear and 
coal-fired power plants are often called base-load 
power plants. 

There is no iron clad rule, however, that base load 
must be met by a traditional base-load power 
plant. Electricity is electricity, after ail, and as 
long as enough power is generated - from any 
source - to balance demand, the lights will stay 
on. And as long as grid operators can predict and 
control the flow of power to the system, the lights 
will stay on reliably. 

It is not necessary, therefore, for society or 
electricity consumers to build unnecessarily 
expensive nuclear power plants solely because 
they have low costs of operation or generate power 
constantly. Indeed, other approaches can satisfy 
the need for base-load power and electricity at all 
times of day, using clean and cost-effective energy 
resources. 

Building a Reliable Grid 
with Clean Energy 

Expending vast amounts of ratepayer money 
on huge, central station power plants - such as 
nuclear power plants - may have been the way 
utilities safeguarded the reliability of the grid 
in the past, but it doesn’t have to be the way 


we do it in the future. By intelligently investing 
our resources and engaging in sound planning, 
America can dramatically increase its use of 
clean energy technologies while safeguarding the 
reliability of the electric grid. 

Step 1; Reduce Demand 
Through Energy Efficiency 

Nuclear power advocates often argue that nuclear 
is necessary to "satisfy a growing demand for 
power.” 201 However, our electricity system wastes 
a great deal of energy. By eliminating that waste 
through energy efficiency programs, we can get 
much more work done with the same - or even 
less - electricity. 

Altogether, experts at the American Council for 
an Energy-Efficient Economy estimate that the 
United States could cost-effectively reduce its 
overall energy consumption by 25 to 30 percent 
or more over the next 20 to 25 years - ensuring 
that America uses less energy several decades 
from now than we do today, even as our economy 
grows. 202 Reducing electricity consumption by 25 
percent below forecast levels by 2030 would save 
more than 1.2 trillion kilowatt-hours of electricity 



America could reduce its energy consumption by 25 to 30 percent 
over the next 20 years through energy efficiency. 

Photo: Eric Delmar, 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



66 


in that year ~ equivalent to the output of more 
than 150 new nuclear reactors. 203 

Energy efficiency improvements reduce demand 
at all parts of the day. Energy efficiency efforts 
targeted at particular sources of base load 
power demand - such as refrigerators, "stand- 
by" power consumption from appliances, and 
industrial facilities - can address the specific 
slice of electricity demand currently met by 
“base load" generators with low operating costs. 
Moreover, energy efficiency programs can save 
America trillions on energy costs. From a societal 
perspective, efficiency is almost always cheaper 
than operating existing power plants. 

Step 2: Use Renewable and 
Efficient “Base-Load” Power Sources 
Nuclear power proponents tend to equate “clean 
energy” with “intermittent energy” While it is true 
that two large sources of clean energy - wind and 
solar power - are intermittent, many are not. These 
sources could be used to directly supplant existing 
traditional base-load power plants, such as coal 
plants. Geothermal energy, biomass and landfill 
gas power plants, as well as concentrating solar 



Concentrating solar thermal power with heat storage can provide 
reliable electricity even when the sun isn't shining. 

Photo: eSolar. 


power plants outfitted with thermal storage, are 
just as capable of producing consistent electricity 
as existing coal, nuclear and hydroelectric plants. 
In the future, other renewable technologies that 
are capable of delivering consistent, always-on 
power, such as ocean current turbines, could also 
be deployed. 

Additionally, combined heat and power units 
— which capture waste heat from buildings or 
industrial operations to generate electricity - can 
operate on demand, greatly reducing emissions 
compared to traditional coal- or natural gas- 
fired power plants. Hospitals and other large 
institutions often use combined heat and power to 
guarantee that power will be available, even when 
the larger electricity grid fails. Combined heat 
and power can offer similar reliability benefits for 
many types of buildings and industries. 

Step 3: Integrate Predictable, 

Intermittent Forms of Clean Energy 

Solar and wind energy are both intermittent 
forms of generation, generating power only when 
the sun is shining or the wind is blowing. But that 
does not mean that they cannot provide a sizeable 
share of America’s electricity - especially when 
integrated over large areas and coupled with 
other clean power technologies. For example, 
Denmark already generates more than 20 percent 
of its electricity from wind power alone, and has 
studied the possibility of deploying wind power at 
penetrations as high as 100 percent. 204 

Studies of the electricity system have shown 
that, with effective planning, the system can 
accommodate the integration of large amounts 
of wind and solar power, without the need for 
additional backup power sources and with minimal 
cost. 205 At penetrations of up to 20 percent wind 
power, the U.S. Department of Energy estimates 
that the cost of integrating wind power will be 
no more than 10 percent of the wholesale value 
of the power - which would result in the cost of 
wind power continuing to be much less that of a 
nuclear power plant. 206 


Generating Failure 



67 


Intermittent resources can be more effectively 
integrated into the system with improved 
forecasts of power output, and by increasing the 
number and geographic dispersion of generators. 
With today’s technology, wind power output over 
a large region can now be forecast with 80 to 90 
percent accuracy a day in advance, and with 90 
to greater than 95 percent accuracy an hour in 
advance. 207 Similarly, solar power output can be 
forecast using models predicting solar intensity 
throughout the day, taking into account the angle 
of the sun and anticipated cloud cover. 

Increasing the number of wind turbines, solar 
panels, and other clean energy resources in a 
system - especially if they are linked with effective 
transmission and distributed over a wide area 
- can smooth power output levels and increase 
predictability. 208 For example, researchers at the 
Rocky Mountain Institute and the University of 
Colorado found that an optimized portfolio of 
wind and solar power, in as few as six locations, 
can reduce the variability of overall power output 
by more than half. 209 The larger the system, the 
more likely that some part of it will be generating 
electricity at any given time, even if the wind stops 
blowing or a cloud drifts over in some areas. 

To achieve even higher penetration, wind, solar 
and other types of clean energy power plants 
could be hybridized with biogas or natural gas 
turbines, much like a gasoline-electric hybrid car. 
Other types of hybrid plants could be possible, 
including offshore wind coupled with ocean wave 
or ocean current turbines. 

One of the more promising ideas for a hybrid 
power plant involves combining solar with 
biogas or natural gas. Plant economics are 
improved by using a single steam-driven 
turbine, with heat coming from either the sun, 
or from natural gas or biogas, depending on 
conditions. 210 This design avoids duplicating 
infrastructure such as transmission lines 
compared to having a fully separate backup 
power plant. Solar systems could even be 



Wind power in America could provide more energy than 190 new 
nuclear reactors, with power output predictable with 80 to 90 
percent accuracy a day in advance. 


Photo: NREL. 


added as a new source of heat to existing power 
plants, in areas with appropriate conditions. 211 

Step 4: Build a Smarter Grid 

The reliability of electric service and the flexibility 
of the system can be increased through smart grid 
technology. America's current electricity grid is 
designed to be a one-way street, with centrally 
generated power distributed to meet demand. 
While "smart grid" is used to refer to a variety 
of measures, ultimately this technology is meant 
to use the power of modern computer networks 
to make the electricity system into a two-way 
street, which can accommodate power generated 
in many locations and exert control over load, 
supply and even energy storage. 

Widely deployed, well-designed smart grid 
technology could help the electricity system 
to respond dynamically to stress, exert fine 
control over energy uses to maintain reliability, 
accommodate the addition of large amounts of 
diverse sources of renewable electricity - from 
wind farms to neighborhood solar panels, and 
integrate energy storage technologies such as a 
network of batteries in plug-in electric or hybrid 
electric cars. 212 

As a result of the Obama administrations 
economic recovery package, $1.2 billion in 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 


68 


smart grid test projects are now or will soon be 
underway, 213 For example, 

■ Southern California Edison is working on 
systems to combine customer control over 
home energy usage in response to system- 
wide electrical demand, solar panel output, 
home energy storage, and plug-in electric 
vehicle need. 214 

■ IBM and a North Carolina technology 
company called Consert have deployed 
a smart grid pilot project that allows the 
utility to “cycle appliances on and off” 
based on customer profiles detailing home 
preferences such as ideal home temperature 
and daily schedule. 215 A test run cut average 
energy consumption by 20 percent, with one 
household achieving a 50 percent cut. 216 

In October 2009, the Obama administration 
injected another $3.4 billion into electric grid 
modernization, as a further part of the economic 
recovery package. 217 Private companies are 
contributing an additional $4.7 billion to the 
effort. 218 This level of investment will purchase 
18 million smart electricity meters - covering 
more than 10 percent of all electricity customers 
in the country. 219 

Step 5: Integrate Storage 
into the Electric System 

Energy storage technologies could ultimately 
enable America’s electricity system to rely 
completely on dean sources of electricity that 
never run out, breaking free entirely from fossil 
fuels and nuclear power. Promising energy storage 
technologies include compressed air storage, 
pumped water storage, heat storage, and batteries 
- such as those found in a plug-in electric or 
hybrid electric car. 


Compressed air storage uses underground 
caverns or aquifers to hold pressurized air, 
which can be released later to drive a turbine and 
generate electricity. 220 These facilities can store 
hundreds of hours of energy, and the technology 
is proven at large scale. A 280 MW facility has 
been operating in Germany since 1978, and a 
110 MW facility has served in Alabama since 
1991. 221 The natural gas industry currently uses 
underground caverns like these to store much of 
the nation’s natural gas supplies. 222 

Pumped water storage involves pumping water 
from a downhill reservoir to an uphill one, then 
releasing the water to generate electricity when 
necessary. 223 The U.S. already uses more than 
20,000 MW of this technology. 224 Pumped storage 
may even be possible without traditional dams. 
A company called Riverbank Power is actively 
testing a plan to drill deep holes in the ground 
near a river, with the potential to generate as 
much as 1,000 MW of power for six hours before 
pumping the water back up to the surface. The 
company is testing the technology at the former 
site of the Maine Yankee nuclear power plant, 
decommissioned more than a decade ago. 225 

Solar developers are now building concentrating 
solar thermal power plants in the desert 
Southwest that incorporate molten salt tanks, 
which can store the sun’s heat with greater than 
99 percent efficiency. The heat can be used to 
generate power when needed, even at night or 
when the sun isn't shining. 226 

Finally, companies are developing batteries that 
can directly store electrical energy. 227 Some of 
these batteries are large and stationary. Another 
promising idea combines smart grid technology 
with an electric or hybrid-electric vehicle system, 
in which every parked vehicle becomes a storage 
device to hold and dispatch dean power. 228 


Generating Failure 



69 


Policy Recommendations 


N uclear power is not the best available 
solution we have in the fight against global 
warming. In fact, it is a dead end. Putting 
aside the unresolved problem of how to safely 
dispose of nuclear waste and the risk of nuclear 
weapons proliferation, the nuclear industry 
simply cannot build new reactors fast enough 
to deliver the progress we need on a time scale 
that will make enough of a difference. Moreover, 
new nuclear reactors are far more expensive than 
other forms of emission-free electricity. Investing 
in a new generation of nuclear reactors would 
actually delay needed progress and divert critical 
investment dollars away from better solutions. 

As a matter of public policy, America should focus 
on improving energy efficiency and generating 
electricity from clean sources that never run out 
- such as wind, solar, biomass and geothermal 
power. These clean energy solutions can deliver 
more emission reductions for our money - 
faster - than nuclear power. Integrated in a 
"smart grid,” clean energy resources can ensure 
a reliable, safe, secure and affordable supply 
of electricity, while rapidly and substantially 
cutting global warming pollution. 


billion in loan guarantees for proposed new 
reactors, far in excess of the $18.5 billion 
that Congress has thus far appropriated. 231 
Applied to 34 possible new reactors. 
Physicians for Social Responsibility calculate 
that the nuclear industry could need as much 
as $170 to $320 billion in loan guarantees. 232 
The Congressional Budget Office considers 
the risk of default on nuclear loan guarantees 
as well above 50 percent, primarily because 
nuclear is not cost-competitive with other 
generation sources. 233 In addition to expanded 
loan guarantees, the nuclear industry wish 
list includes a variety of tax incentives and 
favorable regulatory treatment. 234 

■ The federal government should not further 
subsidize new nuclear power plants. Any 
subsidies for low-carbon energy alternatives 
must be judged based on their relative short- 
term and long-term costs and environmental 
advantages. 235 

Reduce the nation's emissions enough to 
prevent the worst impacts of global warming, 
guided by the latest scientific understanding. 


Accordingly, state and federal leaders should: 

Refrain from directing new subsidies to the 
nuclear industry. 

■ Nuclear power is already the most heavily 
supported form of electric power in America. 
From 1950 to 1999, the federal government 
subsidized nuclear power to the tune of 
$145 billion. 229 The value of all the subsidies 
currently on offer to the nuclear industry is 
substantial - reaching as high as $13 billion 
for a single new reactor. 230 However, the 
nuclear industry is asking for more than $120 


The United States should work in concert 
with other nations to keep cumulative 
world emissions from exceeding 1 trillion 
metric tons of carbon dioxide, or equivalent, 
from 2000 to 2050. Progress on this scale 
is necessary to give the world a 75 percent 
chance of limiting global warming to 3.6° F 
above the pre-industrial era - a target the 
international community has set to limit the 
severity of global warming impacts. 

In order to make this goal possible, the U.S. 
should commit to reducing emissions by at 
least 35 percent below 2005 levels by 2020. The 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



70 


nation should then aim to reduce emissions 
by 80 percent or more by 2050. 

■ Any policy designed to reduce America’s 
emissions of global warming pollution should 
ensure that polluters pay for any right to use 
the atmosphere, and direct resulting revenues 
into accelerating the transition to clean energy 
sources and easing the impact on consumers. 
Additionally, the policy should include strict 
rules for the integrity of any carbon “offsets" 
to ensure that efforts to reduce emissions are 
successful. 

Require America to obtain at least 25 percent 
of its electricity from clean, sustainable energy 
sources such as wind and solar power by 2025. 

■ States with renewable electricity standards 
(RES) are leading the nation in taking 
advantage of America’s ample clean energy 
potential. 236 The United States should set a 
national renewable electricity standard that 
requires that at least 25 percent of America’s 
electricity come from new renewable energy 
sources by 2025. Achieving that target would 
put the nation well on its way to dramatic cuts 
in emissions of global warming pollution. 
Individual states should go further. 


adopted by leading states across the country. 
Such a standard would set a concrete goal 
for improved energy efficiency and unleash 
the resources needed to achieve that goal. A 
federal EERS should seek to reduce electricity 
demand by 15 percent by 2020 and natural gas 
demand by 10 percent, with more ambitious 
goals in later years. 

■ Combining energy efficiency and renewable 
energy with a national effort to limit emissions 
of global warming pollution enhances the 
benefit of these policies to America’s economy. 
For example, the Union of Concerned 
Scientists has found that combining an 
EERS and RES with a cap on global warming 
pollution would deliver $1.6 trillion in 
consumer savings through 2030 compared to 
continuing on our current path, 237 

Strengthen energy efficiency standards and 

codes for appliances and buildings. 

■ America should ensure that all buildings and 
appliances use energy efficiently. New codes 
should aim to reduce energy consumption in 
new buildings by 50 percent by 2020 and ensure 
that all new buildings use zero net energy by 
2030. Individual states should go further. 


Require America to reduce overall electricity 
use 15 percent by 2020. 

■ America has vast potential to use energy more 
efficiently. To take advantage of that potential, 
the nation should adopt an energy efficiency 
resource standard (EERS) similar to those 


Invest in electric grid modernization. 

■ America should upgrade its electricity 
transmission and distribution system to 
maximize our potential to take advantage 
of a diverse range of energy efficiency 
opportunities and clean power sources. 


Generating Failure 



Methodology 


71 


T he starting point for modeling the 
policies and technologies evaluated in 
this report was the Energy Information 
Administration's (EIA) Annual Energy Outlook 
2009, updated reference case. 238 The "no additional 
action" scenario in this report matches the levels 
of power generation, fuel consumption and 
carbon dioxide emissions forecast by the EIA. 
We model the emissions impact of building 100 
new nuclear reactors, or deploying clean energy 
measures with an equivalent capital investment, 
relative to this initial forecast. 


electric sector emissions by 55 percent below 
2005 levels in the next 10 years, and then reducing 
emissions by 95 percent by mid -century. 

The early emission reductions required are 
comparable in magnitude to those described by 
the EIA in modeling the impact of the American 
Clean Energy and Security Act, in a scenario with 
no international offsets and limited availability 
of nuclear or carbon capture and sequestration 
technology. 241 Under these conditions, U.S. power 
plant emissions could fall 37 percent by 2015. 


Calculating a Carbon Budget 
for the United States 

This report accepts a world carbon budget of 
1 trillion metric tons - the limit on allowable 
emissions from 2000 to 2050 to have a 75 percent 
chance of meeting international goals for limiting 
the severity of global warming. We assign 20 
percent of this budget, or 200 billion metric tons, 
to the United States, which is approximately the 
U.S. share of cumulative emissions by mid-century 
under a simplified scenario in which all countries 
work toward equalizing per-capita emissions of 
global warming pollution at about 800 kilograms 
per person per year. 239 By the end of 2009, 140 
billion metric tons of allowable emissions will 
remain for the next 40 years, due to pollution 
already emitted this decade. 24 * 1 

We calculate that the U.S. must reduce emissions of 
carbon dioxide 35 percent below 2005 levels by 2020 
and 80 percent by 2050 to stay within this budget. 


Given these parameters, we estimate that U.S. 
power plants must keep cumulative emissions 
below 34 billion metric tons from 2010 through 
2050 to enable the nation to do its part in limiting 
the consequences of global warming. 

Modeling the Emissions 
Impact of Building 1 00 New 
Nuclear Reactors by 2030 

Starting with the power generation and emissions 
pathway described in the Annual Energy Outlook 
2009, we model the impact of building 100 new 
nuclear power plants, using the following key 
assumptions: 

■ The nuclear reactors will have an average size 
of 1,000 MW. 

■ The reactors will operate with an average 
capacity factor of 90 percent, an upper bound 
estimate of the Keystone study. 242 


Given this emissions trajectory, we assume that 
two- thirds of the reductions through 2020 and half 
of the total required reductions overall come from 
the electricity sector. This is equivalent to reducing 


Electricity generated by the reactors will 100 
percent displace average coal-fired power 
from the US. electricity grid - a best case 
assumption. 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



72 


■ The first reactors will come online in 2016 
and construction will proceed evenly with 
100 reactors operational by 2030. 

■ Nuclear power has zero emissions of global 
warming pollution. 

■ Total electricity demand, generation by fuel 
for all sources other than nuclear and coal, 
and emission rates by fuel proceed as forecast 
in Annual Energy Outlook 2009. 

Developing a Clean Energy 
Scenario Based on the Capital 
Investment Needed to Build 
100 New Nuclear Reactors 

Starting with the range of overnight capital 
investment required to build 100 new reactors 
- $250 billion to $1 trillion, with a mid-point of 
around $650 billion - we created a mid-, lower- 
and upper-bound scenario of clean energy 
deployment that could be achieved with the same 
level of up-front investment. 

With the lower bound investment of $250 
billion, energy efficiency could reduce America's 
electricity consumption by about 12 percent 
below the reference case by 2030, assuming an 
average program plus customer cost of 4.6 cents 
per kWh. We assume that all of the costs of 
efficiency measures are up-front capital costs, and 
we specifically exclude all resulting consumer and 
utility savings when comparing nuclear capital 
investment with efficiency. This assumption 
therefore significantly understates the actual 
advantages of energy efficiency compared to 
nuclear and is highly conservative. 


At mid-range costs, building 100 nuclear reactors 
would cost around $650 billion. $590 billion of 
this could be used to capture a large fraction of 
America's identified potential for electric energy 
efficiency, reducing electricity consumption by 
25 percent below business as usual by 2030. Since 
energy efficiency is the most cost-effective clean 
energy resource, we maximize its use. Based on 
reference case assumptions for the capital cost 
and performance of various renewable electricity 
technologies outlined in Assumptions to the 
Annual Energy Outlook 2009, the remaining $70 
billion could purchase enough wind turbines and 
other renewable energy equipment to generate an 
additional 130 billion kWh by 2030, assuming an 
even rate of investment from 2013 to 2030. 243 

For the upper margin, we assume a nuclear 
capital investment of $1 trillion and low-end 
renewable capital costs from Assumptions to 
the Annual Energy Outlook 2009. In addition to 
the energy efficiency measures described in the 
mid-range case, this level of investment could 
drive the installation of enough infrastructure 
to generate about 900 billion additional kWh of 
renewable energy by 2030, assuming an even rate 
of investment from 2013 to 2030. 244 

Modeling the Emissions 
Impact of Clean Energy 

In modeling the emissions impact of clean 
energy, we assume that a unit of energy efficiency 
displaces an average unit of coal-fired electricity. 
Additionally, we assume that a unit of renewable 
electricity displaces half a unit of natural gas and 
half a unit of petroleum or coal. Additionally, we 
assume that efficiency and renewable power have 
zero emissions of global warming pollution, and 
that emissions rates by fuel progress over time as 
described in the Annual Energy Outlook 2009. 


Generating Failure 



73 


Calculating the Per-Dollar 
Capability of Energy 
Technologies to Prevent 
Global Warming Pollution 

We compare all technologies, assuming for 
simplicity that each displaces an average unit 
of power from the U.S. electricity system, with 
an average emission rate per Annual Energy 
Outlook 2009. 

We use lifecycle carbon dioxide emission rates per 
kWh for a variety of renewable technologies and 
new nuclear reactorsfroma2008 report by Stanford 
scientist Mark Jacobson. 245 We supplement these 
figures with lifecycle emission data for combined 
heat and power and traditional technologies from 
a range of additional sources. 246 

We use levelized cost estimates for an in-service 
date of 2018, using merchant financing, from the 
California Energy Commission for the following 
technologies: 247 

■ Onshore Wind - Class 5 

■ Onshore Wind - Class 3/4 

■ Geothermal 

■ Biomass Combustion 

■ Hydro - Small Scale and Developed Sites 

■ Biomass IGCC (Integrated Gasification 
Combined Cycle) 

■ Offshore Wind - Class 5 

■ Nuclear (Westinghouse AP100) 

■ Solar Thermal 

■ Solar Photovoltaics 248 

■ Natural Gas Combined Cycle 
* Natural Gas Simple Cycle 

■ Coal IGCC 


We supplement these figures with additional 
technologies, including: 

■ End Use Efficiency, based on estimates 
by the American Council for an Energy 
Efficient Economy of 4.6 cents per kWh 
total resource cost, inflated to 2018 dollars 
assuming a 3 percent per year inflation 
rate, and with a 25 percent plus or minus 
uncertainty factor applied; 249 

■ Combined heat and power (CHP), derived 
from estimates for recovered heat industrial 
CHP, combined cycle industrial CHP, and 
building-scale CHP by the Rocky Mountain 
Institute, with a 3 percent per year inflator 
applied to approximate 2018 cost; 250 and 

■ Biomass co-firing cost estimates from the 
investment firm Lazard, with a 3 percent 
per year inflator applied to approximate 
2018 cost. 251 

With this information, we calculated the ability 
of each technology to displace carbon emissions 
based on the average emission rate of the 
U.S. electricity grid, taking into account each 
technology’s lifecycle carbon emissions. Error 
bars in the resulting figure represent high and low 
bounds of pollution reduction cost-effectiveness, 
given a range of available resources, locations, 
and uncertainty in cost estimates. 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



74 


Notes 


1 United Nations Environment 
Programme, Impacts of Climate 
Change Coming Faster and Sooner: 
New Science Report Underlines 
Urgency for Governments to Seal the 
Deal in Copenhagen (press release), 
24 September 2009; United Nations 
Environment Programme, Climate 
Change Science Compendium 2009, 
September 2009. 

2 Ibid and Hamish Pritchard et a)., 
"Extensive Dynamic Thinning on the 
Margins of the Greenland and Antarctic 
Ice Sheets," Nature advance online 
publication, doi: 10. 1038/nature0847 1, 
23 September 2009. 

3 See note 1. 

4 For example, mountain glaciers 
are melting, which wii! reduce the 
availability of drinking water, irrigation 
and hydropower for as much as 25 
percent of ail people on earth. See note 
1 . 

5 Sec for example, Nuclear Energy 
Institute, Key Issues: Climate Change 
Initiatives, downloaded from www.nei. 
org/keyissues on 5 October 2009. 

6 On a life-cycle basis - taking into 
account the energy used to mine and 
enrich uranium, build and dismantle the 
nuclear plant and dispose of radioactive 
waste - a nuclear reactor in the U.S. 
emits about 16-55 grams of carbon 
dioxide per kWh: F. Fthenakis and H.C. 
Kim, “Greenhouse-Gas Emissions from 
Solar Electric- and Nuclear Power: A 
Life-Cycle Study," Energy Policy 35:4, 
2007. 

7 For example, see: Lorraine Woellcrt, 
"McCain Plans to Almost Double U.S. 
Nuclear Reactors," Bloomberg News, 19 
June 2008: Lamar Alexander, U,S. Senate 
Republican Conference, Blueprint for 
100 New Nuclear Power Plants in 20 
Years: How Nuclear Power Can Produce 
Enough Clean, Cheap, Reliable, American 
Energy to Create Jobs, Clean the Air, and 
Solve Global Wanning, 13 July 2009. 

8 John Deutch et aL, Massachusetts 
Institute of Technology, Update of the 
MIT 2003 Future of Nuclear Power, May 
2009. 

9 Intergovernmental Panel on Climate 
Change, Climate Change 2007: 'Ihe 
Physical Science Basis, Contribution of 
WorkingGroup / to the Fourth Assessment 


Report of the Intergovernmental Panel on 
Climate Change, 2007. 

10 Ibid. 

11 Ibid. 

12 Ibid. 

13 See notes 9, 1 and Paul R. Epstein and 
Evan Mills, eds., The Center for Health 
and the Global Environment, Harvard 
Medical School, Climate Change 
Futures: Health, Ecological and Economic 
Dimensions, November 2005. 

14 A.P. Sokolov et al„ Massachusetts 

Institute of Technology, Joint Program 
on the Science and Policy of Global 
Change, "Probabilistic Forecast for 21“ 
Century Climate Based on Uncertainties 
in Emissions (without Policy) and 
Climate Parameters," Journal of Climate 
22: (19): 5175-5204, in press (doi: 
10.1 175/2009JCL12863. 1 ), 2009; Vicky 
Pope, United Kingdom Met Office, 
Head of Climate Change Advice, “Met 
Office Warn of 'Catastrophic' Rise 

in Temperature,” The Times Online 

(London), 19 December 2008. 

15 6J5 feet: W.T. Pfeffer et al.. Institute of 
Arctic and Alpine Research, University 
of Colorado, Boulder, "Kinematic 
Constraints on Glacier Contributions 
to 21st-Century Sea-Level Rise," Science 
321: 1340-1343. September 2008. 

16 Researchers at Florida State University 

calculate that for every 1“ C increase in 
sea-surface temperatures, the frequency 
of severe hurricanes (category 4 and 5) 
increases by nearly one-third. James 
Eisner et al., "The Increasing Intensity of 
the Strongest Tropical Cyclones," Na lure 
455, 92-95, 4 September 2008. 

17 E.J. Burke, S.J. Brown, and N. Christidis, 
“Modeling the Recent Evolution of 
Global Drought and Projections for 
the Twenty- First Century with the 
Hadley Centre Climate Model,” Journal 
of Hydrometeorology 7: 1113-1125, 
2006; Susan Solomon et al., U.S. 
National Oceanic and Atmospheric 
Administration, “Irreversible Climate 
Change due to Carbon Emissions," 
Proceedings of the National Academy of 
Sciences 106: 1704-1709, 10 February 
2009; Richard Seager et al., "Model 
Projections of an Imminent Transition 
to a More Arid Climate in Southwestern 
North America," Science 3 16: 1 18 1- 1 1 84, 
25 May 2007; and see note 24. 


18 See note 9. 

19 Ibid. 

20 Ibid. 

21 Ibid. 

22 See notes 16 and 9. 

23 See note 9. 

24 U.S. Global Change Research Program, 
Global Climate Change Impacts in the 
United States, Cambridge University 
Press, 2009. 

25 Michael Roddy, "Climate Change 
Turning Seas Acid: Scientists," Reuters, 
31 May 2009; David Adam, "How Global 
Warming Sealed the Fate of the World’s 
Coral Reefs," The Guardian, 2 September 
2009. 

26 Charles Hanley, "Beetles, Wildfire: 
Double Threat in a Warming World," 
Associated Press, 24 August 2009. 

27 See note 13, Paul R. Epstein and Evan 
Mills, eds. 

28 Ibid. 

29 See note 17, Susan Solomon et al. 

30 See note 14. 

31 Much of the recent climate science is 
reviewed in note 1. 

32 Intergovernmental Panel on Climate 
Change, Fourth Assessment Report, 
Climate Change 2007: Synthesis Report, 
2007; Brian Walsh, "The New Age of 
Extinction," Time, 1 April 2009. 

33 Gary Shaffer et al., "Long-Term Ocean 
Oxygen Depletion in Response to 
Carbon Dioxide Emissions from Fossil 
Fuels,” Nature Geoscience 2: 105-109, 25 
January 2009. 

34 Rachel Warren, "Impacts of Global 
Climate Change at Different Annual 
Mean Global Temperature Increases," 
in Hans Joachim Schnellnhuber, ed., 
Avoiding Dangerous Climate Change, 
Cambridge University Press, 2006; HM 
Treasury, Stern Review: The Economics of 
Climate Change, 2006, 57. 

35 See note 15, 

36 Greenland from S. Solomon, et al, 
"2007: Technical Summary" in Climate 
Change 2007: The Physical Science 
Basis, Contribution of Working Group l 
to the Fourth Assessment Report of the 
Intergovernmental Panel on Climate 


Generating Failure 



75 


Change, 2007, 80. "Possibly much faster” 
based on James Hansen, "A Slippery 
Slope: How Much Global Warming 
Constitutes ‘Dangerous Anthropogenic 
Interference?’ ” Climatic Change 68:269- 
279, 2005. West Antarctic ice sheet from 
S.H. Schneider, et al., "Assessing Key 
Vulnerabilities and Risk from Climate 
Change," in Climate Change 2007: 
Impacts, Adaptation and Vulnerability, 
Contribution of Working Group II to 
the Fourth Assessment Report of the 
Intergovernmental Panel on Climate 
Change, 2007,794. 

37 James Zachos et al., "An Early Cenozoic 
Perspective on Greenhouse Warming 
and Carbon-Cycle Dynamics,” Nature 
451: 279-283, 17 January 2008. 

38 One third: See note 17, E.J. Burke et al. 
and note 17, Susan Salomon et al. 

39 See note 17, Richard Seagcr et al. 

40 Andreas Sterl et a!„ Royal Netherlands 

Meteorological Institute, “When 
Can We Expect Extremely High 
Surface Temperatures?,” Geophysical 
Research Letters 35, L14703, 

doi:10.1029/2008GL034071, 19 July 

2008. 

41 See note 16. 

42 Donald McKenzie et aL, U.S. 
Department of Agriculture, “Climatic 
Change, Wildfire, and Conservation,” 
Conservation Biology 18(4): 890-902, 
August 2004. 

43 Patricia H. Gude et al., Headwaters 
Economics, Homes in Wildfire-Prone 
Areas: An Empirical Analysis of Wildfire 
Suppression Costs and Climate Change, 
peer reviewed and in preparation for 
journal submission, 24 April 2009. 

44 For example, see note 36, S.H. Schneider, 
et al., 789. 

45 Nathaniel Gronenwold, "IPCC Chief 
Raps G-8, Calls for Global Greenhouse 
Gas Emissions Cuts After 2015,” New 
York Times, 21 July 2009. 

46 European Council, Presidency 
Conclusions, Brussels, 2005: European 
Council, Communication on Community 
Strategy on Climate Change, Brussels, 
1995; international Climate Change Task 
Force, Meeting the Climate Challenge, 
2005; and Malle Meinshausen, "What 
Docs a 2° C Target Mean for Greenhnuse 
Gas Concentrations? A Brief Analysis 
Based on Multi-Gas Emission Pathways 
and Several Climate Sensitivity 
Uncertainty Estimates,” in Hans Joachim 
Schnellnhuber, ed., Avoiding Dangerous 
Climate Change, Cambridge University 
Press, 2006. Also see Juliet Eilperin, "U.S. 
Aims to Weaken G-8 Climate Change 


47 


49 


53 


54 

55 


60 


61 


62 


63 


Statement,” Washington Post, 13 May 
2007. 

See note 32, Intergovernmental Panel on 
Climate Change. 

Myies R. Allen et al., “Warming Caused 
by Cumulative Carbon Emissions 
Towards the Trillionth Tonne," Nature 
458: 1163-1166, 30 April 2009; Make 
Meinshausen et al., “Greenhouse-Gas 
Emission Targets for Limiting Global 
Warming to 2 *C,” Nature 458: 1158- 
1162, 30 April 2009. 

See discussion in Myles Allen et al., "The 
Exit Strategy,” Nature Reports Climate 
Change, doi:10.1038/climate.2009.38, 30 
April 2009. 

See note 48, Maltc Meinshausen et al. 
Ibid. 

James Hansen eta!., “Target Atmospheric 
C0 3 : Where Should Humanity Aim?” 
Open Atmospheric Science Journal 2: 
217-231, 15 October 2008. 
ibid. 

See note 45. 


Administration, Electric Power Annual 
with data for 2007, Table 1.1. Net 
Generation by Energy Source by Type of 
Producer, 1996 through 2007, 21 January 
2009. 

64 For example, the Energy Information 
Administration, modeling the effects of 
the American Clean Energy and Security 
Act, predicts that 80 to 95 percent of the 
required emissions cuts would come 
from the electric power sector as opposed 
to buddings, industry or transportation. 
See: U.S. Department of Energy, Energy 
information Administration, Energy 
Market and Economic Impacts of H.R. 
24S4. the American Clean Energy 
and Security Act of 2009, Report SR- 
CI1AF/2Q09-05. 4 August 2009. 

65 ABC News - Washington Post poll, 

13- 17 August 2009, accessed at www. 
pollingreport.com/energy.htm, 4 

October 2009. 

66 See note 48, Make Meinshausen et al. 

67 For fnrther exploration of this approach, 
see Bruce Hodge, Establishing an 
Equitable Global Carbon Budget 


Alex Morales, "Global Carbon Budget 
Needed to Fight Warming, Nobel 
Winners Say,” Bloomberg News, 28 May 
2009. 

See note 49. 

intergovernmental Panel on Climate 
Change, Climate Change 2007: 
Mitigation of Climate Change, 
Contribution of Working Group III to 
the Fourth Assessment Report of the 
Intergovernmental Panel on Climate 
Change. 2007, Box 13.7, p. 776. 

See note 49. 

100 years: T.J. Biasing, Carbon Dioxide 
Information Analysis Center, Recent 
Greenhouse Gas Concentrations, 
do i: 10.3334/CD1 AC/atg.032, July 2009. 
Kevin Baumert et al., World Resources 
Institute. Navigating the Numbers: 
Greenhouse Gas Data and International 
Climate Policy. 2005. 

Sec e.g. Catherine Dodge, “Gnre Says 
Stimulus Will Help Solve Climate Crisis,” 
Bloomberg News, 28 January 2009. 

U.S. Environmental Protection Agency, 
Inventory of U.S. Greenhouse Gas 
Emissions and Sinks : 1990-2007, April 
2009. 

80 percent: U.S. Department of Energy, 
Energy Information Administration, 
State Historical Tables: U.S. Electric 
Power Industry Estimated Emissions by 
State (ElA-767 and El A-906). 29 January 
2009: “just under half”: US. Department 
of Energy, Energy Information 


To Pre vent Catastrophic Climate Change, Draft 
18 August 2007, available at tenaya.com/ 
climatechange. 

68 2000-2007 actual emissions: U.S. 
Department of Energy, Energy 
Information Administration, Annual 
Energy Review 2008, Table 12.1: 
Emissions of Greenhouse Gases, 1980- 
2007, 26 June 2009; 2008-2009 emissions 
forecast: U.S. Department of Energy, 
Energy Information Administration, Aw 
Updated Annual Energy Outlook 2009 
Reference Case Reflecting Provisions of 
the American Recovery and Reinvestment 
Act and Recent Changes in the Economic 
Outlook, Tabic 8, SR/OIAF/2009-03, 
April 2009. 

69 This budget assumes that the U.S. 
reduces emissions of carbon dioxide 35 
percent below 2005 levels by 2020 and 
80 percent by 2050, and that two-thirds 
of the reductions through 2020 and half 
of the total required reductions overall 
come from the electricity sector. This 
is equivalent to reducing electric sector 
emissions by 55 percent below 2005 
levels in the next 10 years, and then 
reducing emissions by 95 percent by 
mid-century. The Energy Information 
Administration has estimated that the 
Waxman-Markcy American Clean 
Energy and Security Act, under a scenario 
in which opportunities for international 
offsets, nuclear power, carbon capture 
and biomass technologies are limited, 
could drive a 37 percent reduction in 
U.S. power plant emissions by 2015 - 
delivering more than 90 percent of the 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



76 


emission cuts called for by this budget 
through 2030. See the “No Internationa] 
Offsets / Limited Alternatives" case in 
note 64, U.S. Department of Energy. 

70 Data courtesy of: Jonathan Koomey and 
Nate Huffman, “A Reactor-Level Analysis 
of Busbar Costs for U.S. Nuclear Plants, 
1970-2005,” Energy Policy 35: 5630-5642, 
November 2007. 

71 Nuclear Energy Institute, Key Steps 
in Building a New Nuclear Reactor 
(factsheet), January 2009. 

72 Nuclear Regulatory Commission, 
New Reactor Licensing Applications: 
Schedules by Calendar Year, 13 October 
2009, available at www.nrc.gov/reactors/ 
new-reactors.html. 

73 The ABWR reactor certification, issued 
in 1997, expires in 2012. World Nuclear 
Association, Advanced Nuclear Reactors, 
September 2009, available at www. 
world-nuclear.org. 

74 U.S. Department of Energy, Energy 
Information Administration, Status 
of Potential New Commercial Nuclear 
Reactors in the United States, 19 February 
2009; and sec note 72. 

75 See note 72. 

76 See note 71. 

77 Ibid. 

78 Ibid. 

79 Status of Potential New Commercial 
Nuclear Reactors in the United States, 
University of Missouri Nuclear Science 
and Engineering Institute, June 2008. 

80 Matthew Wald, "U.S. Rejects Nuclear 
Plant Over Design of Key Piece,” New 
York Times, 16 October 2009. 

81 Peter Bradford, "Massive Nuclear 
Subsidies Won't Solve Climate Change," 
Wisconsin State Journal, 3 November 
2009. 


Institute, in: "How Much?" Nuclear 
Engineering International, 20 November 

2007. 

87 See note 83, U.S. Department of Energy. 

88 See note 70. 

89 Associated Press, “3-Year Delay Expected 
at Finnish Nuclear Plant,” International 
Herald Tribune, 17 October 2008; James 
Kantcr, “More Delays at Finnish Nuclear 
Plant," New York Times, 2 September 
2009. 

90 James Kanter, “Cost Overruns at Finland 
Reactor Hold Lessons," New York Times, 
28 May 2009. 

91 Alao Katz, "Nuclear Bid to Rival Coal 
Chilled by Flaws, Delay in Finland,” 
Bloomberg.com, 5 September 2007. 

92 See note 89, James Kanter. 

93 Ibid. 

94 Peggy Hollinger, "AREVA Warns of 
Soaring Reactor Costs,” Financial 
limes, 29 August 2008; Peggy Hollinger, 
"AREVA in Talks with TVO over EPR 
Delays,” Financial Times, 16 October 

2008. 

95 Mariah Blake, "Bad Reactors: Rethinking 
Your Opposition to Nuclear Power? 
Rethink Again,” Washington Monthly, 
January 2009. 

96 Thomas Lane, “Is Europe Losing its 
Nuclear Construction Skills?” Building, 
12 December 2008. 

97 Terry Macalister, "Nuclear Industry 
Claims It Is Now 'Sexy' but Admits to 
Rising Costs," 77ie London Guardian, 5 
December 2008. 

98 Yves Marignac, WISE Paris and Nuclear 
Information and Resource Service, 
European Expert: U.S. Policymakers Are 
'As Wrong As They Can Be' About The 
French Experience With Nuclear Power 
(Press Release), 15 September 2009. 


82 Mark Cooper, "All Risk, No Reward," in: 
“Does Nuclear Fit the Bill?" National 
Journal, Energy & Environment Expert 
Blog, 19 October 2009. 

83 U.S. Department of Energy, Energy 
Information Administration.AnArta/ysis 
of Nuclear Power Plant Operating Costs, 
DOE/E1A-051, 1988: and see note 70. 

84 “The Experience Curve,'' Economist.com, 
14 September 2009. 

85 For an analysis of some of these factors, 
see: I.C. Buppand J.C. Derian, The Failed 
Promise of Nuclear Power: The Story of 
Light Water, (Basic Books, Inc., New 
York, NY) 1981. 

86 For example, see comments by Marvin 
Fertel, chief of the Nuclear Energy 


99 Matthew Wald, "Approval Is Sought to 
Build Two Reactors in Texas," New York 
Times, 25 September 2007. 

100 Jim Harding, Economtcsqf Nuclear Power 
and Proliferation Risks in a Carbon - 
Constrained World, Presented to the 
California Senate Energy, Utilities and 
Communication Committee, June 2007 
and published in The Electricity Journal 
30:1-12, November 2007. 

101 Jenny Weil, "Supply Chain Could Slow 
the Path to Construction, Officials Say,” 
Platts Nucleonics Week, 15 February 
2007. 

102 Ibid. 

103 Ibid. 

104 Ibid. 


105 2011: Josef Hebert, “AREVA Plans U.S. 
Nuclear Parts Plant," Associated Press, 
23 October 2008; 30 to 70: assuming an 
average pace of seven reactors completed 
per year and a construction duration of 4 
to 10 years each. 

106 Catherine Morris et al„ The Keystone 
Center, Nuclear Power Joint Fact- 
Finding, June 2007; available at www. 
keystone.org. 

107 For example, see Siena Kaplan, 
Environment America Research & 
Policy Center, Building an Energy- 
Efficient America: Zero Energy and High 
Efficiency Buildings, May 2008. 

108 Mississippi Department of Human 
Services, Stimulus Weatherization 
Assistance Program, Frequently Asked 
Questions: Contractors, June 2009, 

109 GroSoIar, Frequently Asked Questions, 
downloaded from grosolar.com/solar- 
faq / on 30 September 2009. 

110 For examples, see: Travis Madsen and 
Bernadette Del Chiaro, Environment 
California Research 8i Policy Center, 
Greening the Bottom Line: California 
Companies Save Money By Reducing 
Global Warming Pollution, August 2006; 
and Joseph Romm, Cool Companies: 
How the Best Businesses Boost Profits and 
Productivity by Cutting Greenhouse Gas 
Emissions, (Island Press: Washington, 
D.C.) 1999; www.cool-companies.org/ 
homepage.cfm. 

111 For example, see: Poornima Gupta, 
“Duke Energy to Build 200 MW Wind 
Farm in Wyo." Reuters News, 31 August 
2009; Thomas Goerner et a!., Gigaton 
Throwdown, Redefining What's Possible 
for Clean Energy by 2020, Chapter on 
Concentrating Solar Thermal Power, 
available at www.gigatonthrowdown. 
org, June 2009. 

112 European Commission, Joint Research 
Centre, Solar Modules Production 
World-Wide Almost Doubled in 2008 
(press release), 21 September 2009. 

113 U.S, Department of Energy, Office of 
Energy Efficiency and Renewable Energy, 
20% Wind Energy by 2030: Increasing 
Wind Energy’s Contribution to U.S. 
Electricity Supply, May 2008, 163. 

1 14 Marty Kushler et al„ American Council 
for an Energy-Efficient Economy, Five 
Years In: An Examination of the First 
Half-Decade of Public Benefits Energy 
Efficiency Policies, Report Number 
U041, 2004; Dan York et a!., American 
Council for an Energy-Efficient 
Economy, Compendium of Champions: 
Chronicling Exemplary Energy Efficiency 
Programs from Across the U.S., Report 
Number U081, 2008; Maggie Eldridge 


Generating Failure 



77 


et al., American Council for an Energy- 
Efficient Economy, The 2008 State Energy 
Efficiency Scorecard, October 2008. 

115 Based on the authors' modeling and 
assumptions about reactor size and 
performance. See Methodology. 

116 American Wind Energy Association 
(AWE, A), Annual Wind Industry Report: 
Year Ending 2008, 2009; American Wind 
Energy Association, Fighting Against 
Impact of Economic Crisis, U.S. Wind 
Energy Industry Installs 1,200 MW in 
Second Quarter (press release), 28 July 
2009. 

117 Ibid, Annual Wind Industry Report. 

118 Ibid. 

119 Assuming a 33 percent capacity factor, 

12.500 MW of wind would generate 36 
GWh of electricity per year. Compared 
to nuclear output on an energy- 
equivalent basis, assuming a reactor size 
of 1 GW and an annual capacity factor 
of 90 percent (per note 106, Keystone 

120 Ryan Wiser and Mark Bolinger, 
Lawrence Berkeley National Laboratory, 
2008 Wind Technologies Market Report, 
July 2009. 

121 Emerging Energy Research, Global 
Concentrated Solar Power Markets and 
Strategies 2009-2020, 11 May 2009. 

122 Assuming a 33 percent capacity factor, 

8.500 MW of solar would generate 24.6 
GWh of electricity per year. Compared 
to new nuclear reactors as described in 
note 1 19. 

123 Bernadette del Chiaro, Environment 
California Research & Policy Center, 
California's Solar Cities: Leading the 
Way to a Clean Energy Future, Summer 
2009. 

124 Karen Ehrhardt-Martinez and John A. 
"Skip" Lnilner, American Council for 
an Energy-Efficient Economy, The Size 
of the U.S. Energy Efficiency Market: 
Generating a More Complete Picture, 
Report Number F083, May 2008. 

125 The Pew Charitable Trusts, The Clean 
Energy Economy: Repowering Jobs, 
Businesses and Investments Across 
America, June 2009, 

126 Ibid. 

127 Sec note 116, Annual Wind Industry 
Report. 

128 See note 125. 

129 Cost estimates reviewed in: Mark 
Cooper, Vermont Law School, Institute 
for Energy and the Environment, 
The Economics of Nuclear Reactors: 
Renaissance or Relapse?, lune 2009. 


130 U.S. Department of Energy, Energy 

Information Administration, 

Assumptions to the Annual Energy 
Outlook 2009, Table 8.12, Cost 
Characteristics for Advanced Nuclear 
Technology: Three Cases, Report DOE/ 
E1A-0554, March 2009. 

131 See note 129. 

132 High-high case in Jim Harding, 
Economics of Nuclear Reactors and 
Alternatives, February 2009. Reviewed 
in note 129. 

133 Jim Hempstead et al., Moody's Corporate 
Finance, New Nuclear Generating 
Capacity: Potential Credit Implications 
for US. Investor Owned Utilities, May 
2008; and close to the high-low case in 
note 132, Jim Harding, reviewed in note 
129. 

134 Former Vice President Al Gore, A 
Generational Challenge to Repower 
America, a speech given in Washington 
D.C., 17 July 2008. 

135 For example. President Barack Obama 
has said, “The nation that leads the world 
in creating new energy sources will be 
the nation that leads the 21st-century 
global economy. ... [Tjhe bulk of our 
efforts must foeus on unleashing a new, 
clean-energy economy that will begin to 
reduce our dependence on foreign oil, 
will cut our carbon pollution by about 
80 percent by 2050, and create millions 
of new jobs right here in America....’ 
United States of America, Office of the 
President, Remarks by the President 
on Clean Energy, al TYinity Structural 
Towers Manufacturing Plant, Newton, 
Iowa, 22 April 2009; available at www. 
whltehouse.gov. 

136 According to recent estimates of reactor 
overnight costs, and assuming a new 
reactor will have a 1,000 MW capacity. 
The low end of the range is represented 
by note 130; and the high end of the 
range is represented by note 132, Jim 
Harding, reviewed in note 129. 

137 See note 133, Jim Hempstead, et al. 

138 See note 136. 

139 McKinsey Global Energy and Materials, 
Unlocking Energy Efficiency in the U.S. 
Economy, July 2009. 

140 McKinsey estimates that investing $520 
billion in energy efficiency measures 
would reduce annual emissions of global 
warming pollution by 1.2 billion tons of 
carbon dioxide equivalent annually by 
2020. that level of pollution reduction 
could be achieved by 100 GW of new 
nuclear capacity, operating at 90 percent 
capacity, if it fully displaced existing 
coal. 


141 See note 129. 

142 John Deutch, Ernest Moniz, et al., 
Massachusetts Institute of Technology, 
The Future of Nuclear Power: An 
Interdisciplinary MIT Study, 2003, 3. 

143 John Deutch, Ernest Moniz, et al., 
Massachusetts Institute of Technology, 
The Future of Nuclear Power: An 
Interdisciplinary MIT Study, 2003, ix. 

144 See note 8. 

145 $l,500/kW: For example, see comments 
by Marvin Fertei, chief of the Nuclear 
Energy Institute, in: “How Much?" 
Nuclear Engineering International, 20 
November 2007; and comments by 
Constellation Energy Executive Vice 
President Michael Wallace in: Tom 
Pelton, “An Energy Boom in Calvert," 
Baltimore Sun, 21 August 2005. 

146 See note 129; Mark Clayton, "Nuclear 
Power's New Debate: Cost," Christian 
Science Monitor, 13 August 2009; and 
Rebecca Smith, “New Wave of Nuclear 
Plants Faces High Costs,” Wall Street 
Journal, 12 May 2008. 

147 Tyler Hamilton, "S26B Cost Killed 
Nuclear Bid: Ontario Ditched Plan Over 
High Price Tag that Would Wipe Out 20- 
Year Budget," The Toronto Star, 14 July 
2009. 

148 Tyler Hamilton, “Cost of New Nuclear 
in Ontario? Anywhere from $7,400 to 
$10,800 per Kilowatt, Depending on 
Your Appetite for Risk,” www.cleanhreak. 
ca, 14 July 2009. 

149 See note 147. 

150 This figure actually underestimates 
the degree to which nuclear projects 
exceeded budget targets. It excludes 
escalation and finance costs incurred 
by construction delays, and does not 
include data from some of the most 
over-budget reactors. See Congress 
of the United States, Congressional 
Budget Office, Nuclear Power's Role in 
Generating Electricity, May 2008, based 
on data from U.S. Department of Energy, 
Energy Information Administration, 
An Analysis of Nuclear Power Plant 
Construction Costs, Technical Report 
DOE/E1A-0485. 1 January 1986. 

151 The Vogtlc plant in Georgia, which began 
producing electricity in the late 1980s, 
cost $8.87 billion to build. Us original 
construction budget was on the order of 
$660 million. See Jon Gertner, “Atomic 
Balm?” The New York Times Magazine, 
16 July 2006; David Schlissel and Bruce 
Biewald, Synapse Energy Economics, 
Inc., Nuclear Power Plant Construction 
Costs, July 2008. 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



78 


152 Sec note 70, Jonathan Koomey and Nate 
Hultman. 

153 Ibid. 

154 Communities of experts often have an 
optimistic bias, and "overconfidence in 
the rates of future technological advance 
should be expected," See Nathan 
Hultman and Jonathan Koomey, “ The 
Risk of Surprise in Energy Technology 
Costs' Environmental Research Letters 
2, 0304002, 2007; online at stacks.iop. 
org/ERL/2/034002. 

155 Nathan Hultman, Jonathan Koomey and 
Daniel Kammen, "What History Can 
Teach Us about the Future Costs of U.S. 
Nuclear Power, 1 * Environmental Science 
and Technology 41; 2088-2093, 1 April 
2007. 

156 Moody's Global Infrastructure Finance, 
New Nuclear Generation: Ratings 
Pressure Increasing, Special Comment , 
June 2009, p. 2. 

157 See note 129. 

158 Ibid. 

159 Katherine Friedrich ot at., American 
Council for an Energy-Efficient 
Economy, Saving Energy Cost-Effectively: 
A National Review of the Cost of Energy 
Saved Through Utility-Sector Energy 
Efficiency Programs, September 2009. 

160 Ibid. 

161 For example, see; Maggie Eldridge et 
al., American Council for an Energy- 
Efficient Economy, Energy Efficiency: 
The First Fuel for a Clean Energy Future, 
Report E082, February 2008; R. Neal 
Elliott et al., American Council for an 
Energy Efficient Economy, Potential 
for Energy Efficiency and Renewable 
Energy to Meet Florida's Growing Energy 
Demands, Report E072, May 2007; John 
A. "Skip" Laitner and Vanessa McKinney, 
American Council for an Energy- 
Efficient Economy, Positive Returns: 
State Energy Efficiency Analyses Can 
Inform U.S, Energy Policy Assessments, 
Report Number E084, June 2008; 
Richard Sedano, Regulatory Assistance 
Project, Economic, Environment and 
Security Effects of Energy Efficiency 
and Renewable Energy: A Report for 
EPA and the New England Governors' 
Conference, Northeast Energy Efficiency 
Partnerships (NEEP) Policy Conference, 
24 May 2005; Howard Geiler et al., 
Southwest Energy Efficiency Project, The 
New Mother Lode: The Potential for More 
Efficient Electricity Use in the Southwest, 
November 2002. 

162 Doug Hurley et al., Synapse Energy 
Economics for Northeast Energy 
Efficiency Council, Costs and Benefits 


of Electric Utility Energy Efficiency in 
Massachusetts, August 2008. 

163 Experts estimate that recycled energy 
sources could generate 240,000 to 
360,000 GWh per year of electricity 
in the United States - equivalent to 
between 6 and 10 percent of total national 
consumption in 2007; 'Thomas R. Casten 
and Martin J. Collins, Private Power 
LLC, Recycled Energy: An Untapped 
Resource, 19 April 2002; percentage of 
national consumption estimated from 
data in U.S. Department of Energy, 
Energy Information Administration, 
Annual Energy Outlook with Projections 
to 2030, Reference Case Table 8, Report 
Number DOE/EIA-0383, June 2008. 
Cost estimate: Amory Lovins and Imran 
Sheikh, “The Nuclear lllnsion,” Ambio (in 
press), 2009; available at www.rmi.org. 

164 For example, see note 161, Maggie 
Eldridge et a!.; Amory Lovins, Rocky 
Mountain Institute, Nuclear Power: 
Economics and Climate-Protection 
Potential, RM1 Publication Number EOS- 
14, 6 January 2006; and see note 165. 

165 Amory Lovins and Imran Sheikh, “The 
Nuclear Illusion," Ambio (in press), 2009; 
available at www.rmi.org. 

166 Wind: see note 113; Sun: Bernadette del 
Chiaro, Tony Dutzik and Sarah Payne, 
Environment America Research & Policy 
Center, On the Rise: Solar Thermal Power 
and the Fight Against Global Warming, 
Spring 2008; Geothermal: Jefferson W. 
Tester et al., Massachusetts Institute 
of Technology for the U.S. Department 
of Energy, The Future of Geothermal 
Energy: Impact of Enhanced Geothermal 
Systems (EGS) on the United States in the 
21st Century, 2006. 

167 Southern Alliance for Clean Energy, 
Yes We Can: Southern Solutions for a 
National Renewable Energy Standard, 
12 February 2009. 

168 With an average levelized cost of 8.6 
cents per kWh (2006 dollars). Sec note 
113. 

169 Compared to nuclear output on an 
energy-equivalent basis, per note 119. 

170 See note 113, page 163. 

171 Energy and Environmental Economics, 
Inc. for the California Public Utility 
Commission, Generation Costs 
(Microsoft Word document), 16 
November 2007; available at www. 
ethree.com/cpuc _ghg_modcl.html. 

172 Mid-range estimate of 16 cents per 
kWh, plus 2 cents for transmission 
and distribution, per note 129. More 
than 110 reactors; compared to nuclear 
output per note 1 19. 


173 The Union of Concerned Scientists 
(UCS) estimates that a national 
renewable electricity standard of 25 
percent by 2025 would reduce electricity 
prices by more than 4 percent annually, 
and natural gas prices by more than 2 
percent annually, saving consumers more 
than $95 billion: Union of Concerned 
Scientists, Clean Power, Green Jobs: A 
National Renewable Electricity Standard 
Will Boost the Economy and Protect the 
Environment, March 2009; and similarly, 
experts at the American Council for an 
Energy-Efficient Economy estimate that 
a national energy efficiency resource 
standard would save Americans close to 
$ 170 billion on their energy bills by 2020: 
Laura Furrey, Steven Nadel and John 
“Skip" Laitner, American Council for an 
Energy-Efficient Economy, Laying the 
Foundation for Implementing A Federal 
Energy Efficiency Resource Standard, 
March 2009. 

174 For example, see note 129. 

175 Joe! Klein, California Energy 
Commission, Comparative Costs of 
California Central Station Electricity 
Generation Technologies, CEC-200- 
2009-017-SD, Draft Staff Report, August 
2009. 

176 For example, see notes 129, 182, 165, 
132 (Harding), 133 (Hempstead et al.), 
159, Standard and Poor’s, The Race for 
the Green: How Renewable Portfolio 
Standards Could Affect U.S. Utility 
Credit Quality, 10 March 2008; and 
Rachel Clcetus, Steven Clemmer and 
David Friedman, Union of Concerned 
Scientists, Climate 2030: A National 
Blueprint of a Clean Energy Economy, 
May 2009. 

177 See note 175. 

178 Sources: see Methodology. 

179 Charles F. Kutscher, ed., American Solar 
Energy Society, Tackling Climate Change 
in the U.S.: Potential Carbon Emissions 
Reductions from Energy Efficiency and 
Renewable Energy by 2030, January 2007, 
estimate in constant 2004 dollars. 

180 Kate Galbraith, "More Sun for l.css; 
Solar Panels Drop in Price," New York 
Times, 26 August 2009. 

181 Jim Loney, “FPL Unveils Plans for Three 
Florida Solar Plants," Reuters News 
Service, 25 June 2008; Matthew Wald, 
"Two Large Solar Plants Planned in 
California," New York Times, 15 August 
2008. 

1 82 Lazard, Levelized Cost of Energy Analysis 
2.0, Presentation at NARUC, June 2008. 

183 Ibid. 


Generating Failure 



79 


184 Sven Teske et ai„ Greenpeace 
International, European Renewable 
Energy Council, Energy [Revolution: A 
Sustainable USA. Energy Outlook, 11 
March 2009. Arjun Makhijani, Nuclear 
Policy Research Institute and the 
Institute for Energy and Environmental 
Research, Carbon-Free and Nuclear- 
Free: A Roadmap for U.S. Energy Policy, 
IEER Press and RDR Books, October 

2007. 

185 Assuming an average program plus 
customer cost of 4.6 cents per kWh. We 
assume that all of the costs of efficiency 
measures are up-front capital costs, 
and we specifically exclude all resulting 
consumer and utility savings when 
comparing nuclear capital investment 
with efficiency. This assumption 
therefore significantly understates the 
actual advantages of energy efficiency 
compared to nuclear and is highly 
conservative. 

186 See note 129. 

187 Assuming an even rate of investment 
from 2013 to 2030, and based on 
reference case assumptions for the 
capital cost and performance of various 
renewable electricity technologies 
outlined in: U.S. Department of Energy, 
Energy Information Administration, 
Assumptions to the Annual Energy 
Outlook 2009, Report DOF./E1A-0554, 
March 2009. All wind or a mix of landfill 
gas, biomass co-firing, geothermal and 
wind would have a similar capital cost. 

188 Compared to nuclear output per note 
119. 

189 In addition to the energy efficiency 
measures described in the mid-range 
case, this level of Investment could drive 
the installation of enough infrastructure 
to generate about 900 billion additional 
kWh of renewable energy by 2030. All 
wind or a mix of landfill gas, biomass 
co-firing, geothermal aod wind would 
have a similar capital enst. See note 187. 
Compared to nuclear energy output per 
note 119. 

190 Noelle Straub and Peter Behr, "No Need 
to Build New U.S. Coal or Nuclear 
Plants - FERC Chairman,” Energy and 
Environment Daily, 22 April 2009. 

191 For example, see note 7, Lamar 
Alexander. 

192 Patrick Moore, Greenspirit Strategies 
(a PR firm working for corporate clients 
including the nuclear industry), “Going 
Nuclear: A Green Makes the Case,” 
Washington Post, 16 April 2006. 

193 PJM East hourly load data downloaded 
from www.pjm.com/markets-and- 


operations/ energy/ real- time/loadhryr. 
aspx 

1 94 Alan Gomez, "Answers Sought in Florida 
Power Outage,’ USA Today, 27 February 

2008. 

195 David Lochbaum, Union of Concerned 
Scientists, Testimony to the U.S, House 
of Representatives, Select Committee 
on Energy Independence and Global 
Warming 12 March 2008. 

196 Ibid. 

197 Amory Lovins, Rocky Mountain 
Institute, “Surprises and Resilience: 
Mishap or Malice Regularly Crash the 
Electricity System,' RMi Solutions, 
Spring 2006. 

198 Ibid. 


206 See U.S. Department of Energy, Energy 
Information Administration, Electric 
Power Annual with Data for 2007, Figure 
ES 2. U.S. Electric Power Industry Net 
Summer Capacity, 21 January 2009. 

207 J. Charles Smith, Utility Wind Integration 
Group, 20% Wind by 2030: Impact on 
Utilities and Transmission (power point 
presentation), WCEE, Washington D.C.. 
23 June 2009. 

208 See note 113. 

209 Bryan Palmintier, Lena Hansen and 
Jonah Levine, Rocky Mountain Institute 
and University of Colorado at Boulder, 
Spatial and Temporal Interactions of 
Solar and Wind Resources in the Next 
Generation Utility, presented at the 
Solar 2008 Conference, 3-8 May 2008. 


199 Ibid. 

200 According to Amory Lovins, "98 to 99 
percent of U.S. power failures originate 
in the grid.’ See note 165. 

201 See note 192. 

202 See note 124 and Steven Nadel, Anna 
Shipley, and R. Neal Elliot, American 
Council for an Energy-Efficient 
Economy, The Technical, Economic, and 
Achievable Potential for Energy Efficiency 
in the U.S.—A Meta-Analysis of Recent 
Studies, From the Proceedings of the 
2004 ACEEE Summer Study on Energy 
Efficiency in Buildings, 2004. 

203 1.2 trillion: calculated based on the 
reference forecast in: U.S. Department 
of Energy, Energy Information 
Administration, An Updated Annual 
Energy Outlook 2009 Reference Case 
Refecting Provisions of the American 
Recovery and Reinvestment Act and 
Recent Changes in the Economic Outlook, 
Table 8, SR/01AF/2009-03, April 2009; 
150 reactors: compared to nuclear 
output on an energy-equivalent basis per 
note 1 19. 

204 See note 113. 

205 See note 113 and American Wind Energy 
Association, Groundbreaking Minnesota 
Wind Integration Study Finds up to 25 
Percent Wind Can Be Incorporated into 
Electric Power System (press release), 13 
December 2006. Wind industry analysts 
suggest it is possible to have up to 40 
percent wind power as part of a smoothly 
functioning electricity grid. See, for 
example, Randall S. Swisher, "Bringing 
Wind Energy Up to ’Code,'" Public 
Utilities Fortnightly, June 2004. Swisher, 
executive director of the American Wind 
Energy Association, a wind industry 
trade group, contends that the technical 
limits to the integration of wind into 
electricity grids is approximately 40 
percent of annual energy use. 


210 For further exploration of this idea, see: 
Craig Severance, “Solar You Can Count 
On." Energy Economy Online, 18 August 

2009. 

211 Ibid. 

212 Craig Severance, “Smart Grid," Energy 
Economy Online, 27 April 2009. 

213 John Collins Rudolf, "A Mad Dash for 
Smart Grid Cash," New York Times, 15 
September 2009. 

214 Ibid. 

215 Todd Woody, “Smart Grid Project Cuts 
Electricity Usage," New York Times 
(Green, Inc.), 21 September 2009. 

216 Ibid. 

217 Evan Lehmann, “Obama Admin Invests 
S3.4B in "Smart Grid” Projects,” Energy 
and Environment News, 27 October 
2009. 

218 Ibid. 

219 Ibid. 

220 For further exploration of energy storage 
technologies, see: Craig Severance, 
“Enabling Wind, Sun To Be Our Main 
Power Supplies: Quest for Storage - 
“Holy Grail" of New Energy Economy - 
Nears Goal,” Energy Economy Online, 29 
August 2009. 

221 Ibid. 

222 Ibid. 

223 Ibid. 

224 Ibid. 

225 Ibid. 

226 See note 166, Bernadette Del Chiaro et 
al. 

227 See note 220. 

228 E.g. Tom Simonite, "Electric Cars Could 
Act as Batteries for the Energy Grid," 
New Scientist, 4 December 2007. 


How Building Nuclear Power Plants Would Set America Back in the Race Against Global Warming 



80 


229 Marshall Goldberg, Renewable Energy 
Policy Project, federal Energy Subsidies: 
Not All Technologies Are Created Equal, 
July 2000. 


are an Expensive Way to Remove 
Greenhouse Gases from the Economy, 
available at earthtrack.net/files/Carbon 
efficiency of Subsidies.pdf. 


242 See note 106. 

243 See note 187. 

244 Ibid. 


230 Doug Koplow, Earth Track, Inc., The 
Future of Nuclear Energy in a Carbon 
Constrained World (power point 
presentation), Carnegie Corporation, 
New York, NY, 5 November 2007. 

231 Katherine Ling, “Waxman Chairmanship 
Could Thwart Industry Priorities" 
Environment and Energy Daily, 18 
November 2008; See also Rebecca Smith, 
"Clean Energy Confronts Messy Reality," 
The Wall Street Journal, 20 November 
2008. 

232 Michele Boyd, Physicians for Social 
Responsibility, Billions of Dollars of 
Nuclear Subsidies 

Hidden in New Energy Reform Act of 2008 
(Factsheet), 1 1 September 2008. 

233 U.5. Congressional Budget Office, Cost 
Estimate: S. 14 Energy Policy Act of 2003, 
As Introduced on April 30, 2003, 7 May 
2003. 

234 The Nuclear Energy Institute, Legislative 
Proposal to Help Meet Climate Change 
Goals by Expanding US. Nuclear Energy 
Production, 21 October 2009. 

235 For an example of this kind of analysis, 
see: Doug Koplow, Earth Track, Subsidies 


236 Tony Dutzik and Rob Sargent, Frontier 
Group and Environment America 
Research & Policy Center, America’s 
Clean Energy Stars: State Actions 
Leading America to a New Energy Future, 
November 2007. 

237 See Union of Concerned Scientists in 
notes 173 and 176. 

238 U.S. Department of Energy, Energy 
Information Administration, Annual 
Energy Review 2008, Table 12.1: 
Emissions of Greenhouse Gases, 1980- 
2007, 26 June 2009; 2008-2009 emissions 
forecast: US. Department of Energy, 
Energy Information Administration, An 
Updated Annual Energy Outlook 2009 
Reference Case Refecting Provisions of 
the American Recovery and Reinvestment 
Act and Recent Changes in the Economic 
Outlook, Table 8, SR/01AF/2009-03, 
April 2009. 

239 See note 67. 

240 See note 68. 

241 This scenario delivers more than 90 
percent of the emission cuts called for 
by our electricity sector carbon budget 
through 2030. See note 69. 


245 Mark Jacobson, “Review of Solutions 
to Global Warming, Air Pollution, 
and Energy Security" Energy and 
Environmental Science 2: 148-173, 2009. 

246 Combined heat and powerandnaturaigas 
combined cycle: see note 16S; Biomass: 
Frank Bamaby and James Kemp, eds., 
Oxford Research Group, Secure Energy? 
Civil Nuclear Power, Security, and Global 
Warming, March 2007, 41. Available at 
www.oxfordresearchgroup.org.uk. 

247 See note 175. 

248 This calculation assumes 100 percent of 
the cost of installing a solar PV system 
is born by the utility as in the case of a 
utility-built project. However, when 
solar PV systems are simply subsidized 
by ratepayers through feed-in-tariffs 
or rebates, the per unit of energy cost 
of solar PV to the utility /ratepayer, 
dramatically falls making distributed 
solar power much more cost effective 
from a utility perspective than this 
analysis shows. 

249 See note 159. 

250 See note 165. 

251 See note 182. 


Generating Failure 



81 


Center tor American Progress 



Clean-Energy Investments 
Create Jobs in Ohio 


Investments in a clean-energy economy will generate major employment benefits for 
Ohio and the rest of the U.S. economy. Our research finds that Ohio could see a net 
increase of about $5.6 billion in investment revenue and 67,000 jobs based on its share 
of a total of$ I SO billion in clean-energy investments annually across the country. This is 
even after assuming a reduction in fossil fuel spending equivalent to the iocrease in clean- 
energy investments. 

Adding 67,000 jobs to the Ohio labor market in 2008 would have brought the state’s 
unemployment rate down to 5.4 percent from its actual 2008 level of 6.5 percent. 


Clean energy creates jobs across the economy 

Clean-energy investments create 16.7 jobs for every $1 million in spending. Spending on 
fossil fuels, by contrast, generates 5.3 jobs per $1 million in spending. 

Most of the jobs created through clean-energy investments will be in the same areas 
that people work in today. Constructing wind farms creates jobs for sheet metal workers, 
machinists, and truck drivers. Increasing buildings’ energy efficiency through retrofit- 
ting requires roofers, insulators, and building inspectors. Expanding mass transit systems 
employs civil engineers, electricians, and dispatchers. 

Relative to spending on fossil fuels, clean-energy investments create 2.6 times more jobs 
for people with college degrees or above, 3 times more jobs for people with some college, 
and 3.6 times more jobs for people with high school degrees or less. 


71 Political Economy Research Institute • Center for American Progress 



82 


Legislation encourages private investment 

Most of the SI 50 billion per year in new dean energy investments would come from 
private businesses. The American Recovery and Reinvesment Act encourages private 
investors through a wide range of subsidies, incentives, and regulations. The American 
Clean Energy and Security Act — currently being debated in Congress — includes a range 
of measures that would substantially strengthen these clean-energy investment incentives 
for private businesses. 

Policies such as the ACESA will have significant economic benefits in addition to their envi- 
ronmental contributions. Most importantly, a clean-energy investment program will be an 
engine for expanding employment opportunities in Ohio and throughout the country. 


Investment promotes efficiency and renewable energy 

The largest share of dean-energy investments will go toward energy efficiency, including 
funds for building retrofits, public transportation, and a smart grid electrical transmission 
system. Important new investments will also be devoted to developing renewable energy 
sources, including wind, solar, biomass, and geothermal power. 

The overall clean-energy investment program will provide a major boost to the construc- 
tion and manufacturing sectors, in Ohio and throughout the United States. 


Robert Pollin is professor of economics and co-director of the Political Economy Research 
Institute at the University of Massachusetts-Amherst. James Heintz is associate research 
professor and associate director for PERL Heidi Garrett-Peltier is a PERI research fellow. 


72 Political Economy Research Institute * Center for American Progress 



83 


j|ACCF 

Ohio 

Economic Impact on the State from the Waxman-Markey Bill, H.R. 2454 
Proposed Legislation to Reduce Greenhouse Gas Emissions 


This study analyzes the Waxman-Markey bill under low 
and high cost cases with respect to a baseline that projects 
the future in the absence of the bill. 1,2 W/M sets targets that 
would reduce GHG emissions to 1 7% below 2005 levels by 
2020; 42% below 2005 levels by 2030; and 83% below 
2005 levels by 2050 (Figure 1). The price of carbon permits 
(what companies must pay to emit CO 2 ) could reach 
between $48 and $6 1 per metric ton of CO 2 (MT) by 2020 
and could increase to between S123/MT and S159/MT by 
2030. 3 

Impact on Jobs 

The jobs impact of W/M is delayed by the free allocation of 
permits and generous carbon offsets. By 2030, as emission 
reduction targets tighten and other W/M provisions phase 
out, Ohio jobs decline by 79,700 under low cost case and 
by 108,600 under high cost case (Figure 2). The primary 
cause of job losses would be lower industrial output due to 
higher energy prices, the high cost of complying with 
required emissions cuts, and greater competition from 
overseas manufacturers with lower energy costs. 

Decrease in Disposable Household Income 

Higher energy prices would have ripple impacts on prices 
throughout the economy and would impose a financial cost 
on households. Ohio would see disposable household 
income reduced by $133 to $261 per year by 2020 and 
$873 to $1,419 by 2030 (Figure 3). 

W/M’s Impact on Energy Prices 

Most energy prices would rise under W/M, particularly 
coal, oil and natural gas. By 2015, gasoline would increase 
between 6% and 8%, electricity between 2% and 5% and 
natural gas between 17% and 26%. By 2030, gasoline 
prices increase between 20% and 26% while electricity 
prices increase by up to 60% and natural gas by up to 79%. 
Table l shows the increase in energy prices faced by a 
typical Ohio household compared to national household 
increases over the 2020-2030 period. 

Factors Contributing to Higher Electricity Prices 

W/M would reduce GHG emissions from all sectors of the 
economy (transportation, residential, commercial, and 
industry); however, as the largest emitter of GHGs, the 
primary impact would fall on the electric sector. W/M 
would result in the electric industry shutting down most 
carbon-based generation and/or using expensive, as yet 
unproven technology, to capture and store C0 2 . To meet 
the stringent goals of W/M, the electric industry would also 
have to substitute high cost technologies, such as biomass 
and wind, for conventional generation. 


Figure 1. US GHG Emissions and 
H.R 2454 Targets 



Figure 2. Loss in Employment by 2030 



Figure 3. Loss of Disposable Income per 
Household 

2020 2030 



'The study used NEMS/ACCF-N AM 2, the version of the National Energy Modeling System (NEMS) used in this project, and assumptions provided by ACCF and NAM 
for this analysis. It was performed independent of E1A which uses the NEMS model for energy forecasting and policy analysis. (See the full report for all assumptions). 



84 


Impact on Economic Growth 

High energy prices, fewer jobs, and loss of industrial output 
are estimated to reduce Ohio’s gross state product (GSP) by 
between $1,3 and $2.3 billion per year by 2020 and $13.9 
and $18.9 billion by 2030 (Figure 4). 


Impact on Industry 

Ohio’s major economic sectors will be affected by emission 
caps (Figure 5). The current two largest sectors, chemical 
manufacturing and transportation manufacturing, show 
decreases in output of 6.1% to 6.7% and 8.0% to 8.5%, 
respectively in 2030. All manufacturing sectors will suffer 
output losses of between 5.4% and 6.0% by 2030, while 
output from energy intensive sectors falls between 10.7% 
and 11.7%. Ohio’s coal production would fall between 
70.5% and 76.8% and electricity production would fall by 
15.1% to 18.6% by 2030 (Figure 6). These continued losses 
will have a lasting effect on the economic base of Ohio. 


Impact on Low Income Families 9 

The impacts of W/M will be felt especially by the poor, 
who spend a greater share of their income on energy and 
other goods than other income brackets. By 2030, higher 
energy prices mean that low income families in Ohio (with 
average incomes of $13,725) will spend between 18.9% 
and 20.1% of their income on energy under W/M compared 
to a projected 15.9% without W/M. Others on fixed 
incomes such as the elderly will also suffer 
disproportionately. 

Impact on State Budgets 6 

The increases in Ohio’s energy costs under W/M will 
impact expenditures throughout the state. Specifically, 
Ohio’s 5,204 schools and universities and 241 hospitals 
will likely experience a 28.2% to 42.0% increase in energy 
expenditures by 2030. For government entities, costs for 
services, including public transportation and vehicle fleets, 
such as school buses, will also rise under W/M. 


Table 1; Change in Energy Prices at Household Level 
(% change from baseline) 

Sector 



us 

ISI 

cum 

ll'-l'.'l 

eh 

Electricity 

(Residential) 

H'Hil 

EM 

It.'l 

EM 

KV 


BE3I 

BUM 

EM 

mm 

H'Hil 


EBB 

BE3 

EE3 

Gasoline 


HW 

BIB 

EM 

Ktm'i 

EE3 

1EE21 

HTve 

grtrtTl 

EHE1 

Em 

IB 

n.et'ti 

EEZf 

Ml 

Natural Gas 
(Residential) 

ESI 


EM 


EM 

HiVU 

EM 

Ittfl 


EBB 

ESI 


EE3 




Figure 4. Loss in Gross State Product For 
Ohio 


SO 

-$ 5,000 

o 

^ & - 510,000 

•2 g 

= **-$ 15,000 

z 

-$ 20,000 


2020 


-$1,315_j 2 20o 


C LowCost Scenario 
■ High Cost Scenario 



Figure 5. Percent Change in Output by 
industry in 2030 

0% 

-5% 

- 10 % 

- 15 % 

- 20 % 

MAN EIS CHEM TRAN 


l 

-S.4%_ 6 o% 

I 1 1 

□ OH Low 1 
■ OH High ; 

"° ° ' -8.5% 


Figure 6. Percent Change in Production by 
Sector in 2030 



Coal Elec. 


3 “Low” refers to the Low Cost Case, which assumes higher nuclear capacity, fewer constraints on new generating technologies, etc. “High” refers to the High Cost 
Case, which assumes low nuclear additions and constrained new generation technologies, etc. (See the full report for all assumptions). 

3 All dollar figures in this report are presented in constant 2007 dollars. 

4 MAN = manufacturing industries, HIS = energy intensive industries; CHEM = chemical manufacturing; TRAN = transportation manufacturing. 

5 These projections assume that the energy expenditures by income quintile in the state are the same as the average for the census division, since there is insufficient 
data to accurately calculate this quantity on the state level. 

s These projections assume that the expenditures on schools and hospitals arc the same as the average for the census region, since there is insufficient data to 
accurately calculate these quantities on the state level. 









85 


Senator Alexander. Madam Chairman. 

Senator Boxer. Yes. 

Senator Alexander. May I ask permission, since you mentioned 
my comment, to put in the record a comparison of nuclear and 
wind power that has a Department of Energy estimate that shows 
the cost of building 186,000 wind turbines is approximately the 
same as building 100 nuclear plants, that it would cover 25,000 
square miles instead of 100, and that it would cost 10 times as 
much in Federal subsidies and 19,000 more miles of new trans- 
mission lines, which are not part of that calculation? 

Senator Boxer. We will put that in the record and make a point, 
I am not supporting having ratepayers pay for those windmills out- 
side of this bill either. So I think what you do is, if you do this cap- 
and-trade, all of these have a level playing field and you don’t pick 
a winner, because they are all going to be winners if they don’t 
emit carbon. 

[The referenced information follows:] 



86 



The National Academies: America's Energy Future, July 2009. 



87 


Senator Inhofe. Madam Chairman. 

Senator Boxer. We are going to move on. 

Senator Inhofe. Well, Madam Chairman, let me ask proce- 
durally, if you are going to come through and refute things that 
each member on this side says afterwards, I think that is not a 
good policy unless we get a chance to participate in that. 

Senator Boxer. Right, I only do it 

Senator Inhofe. I sat here for 25 minutes listening to Senator 
Kerry talk about me, and I didn’t have a chance to respond. I will, 
however. 

Senator Boxer. I so appreciate it. And I just have to say, when 
somebody says the Chairman isn’t being fair and that we don’t 
have the bill out there, I need to respond to that. But we will all 
have time later. 

Senator Lautenberg. 

OPENING STATEMENT OF HON. FRANK R. LAUTENBERG, 
U.S. SENATOR FROM THE STATE OF NEW JERSEY 

Senator Lautenberg. Thanks very much, Madam Chairman. We 
are all indebted to John Kerry for his presentation. 

Even though one could disagree, I don’t know whether it is in a 
substantial fact disagreement or political, but the fact is, he offered 
us a view of where we are at that cannot be ignored. We are all 
grateful to him. Along the way, I think we ought to have a vote 
on whether his speech made any sense or not. 

But I feel like we are developing an unreality show here. The 
whole thing to me is unreal, I must tell you, friends. We are now 
looking at the number of pages of paper that determine whether 
or not this bill has veracity. I didn’t know there was such an inter- 
est in protecting the trees here. But we hear protests about 900 
pages. 

The fact of the matter is that we have a very good friend on the 
other side, distinguished Senator, Senator Voinovich; he was very 
proud of his work on Clean Skies and talked about producing 
10,000 pages worth of information that could be viewed and judged. 

Senator Voinovich. It was the analysis, Senator, just the anal- 
ysis of it. 

Senator Lautenberg. So what we are now hearing is that, heav- 
en forbid that there are too many pages in this thing. We ought 
to have in our audience a bunch of children, 6 to 10, 6 to 11 years 
old, and explain to them why it is that we want to fight about this. 
Do we see any risk to them? Do we see any danger? When we look 
at the evidence in front of us, whether it is our physical security 
or whether it is security for good health and long lives. 

There is a film produced on ocean acidification. Thirty percent of 
the carbon dioxide has been typically absorbed in oceans. That has 
increased markedly since the Industrial Revolution. The increase is 
a hundred times faster than any change in acidity experienced by 
marine organism for at least 20 million years. Ocean acidification 
affects shellfish, primarily by impairing their ability to develop pro- 
tective shells. Carbon dioxide continues to be released into our at- 
mosphere. Ocean acidification could harm commercially important 
shellfish, lobster, crabs and mussel. 



88 


And yes, it would be important to hear from the farmers. It 
would be equally important to hear from the fishermen. It would 
be equally important to hear from those who are concerned about 
what is happening with asthma in our society. The same things 
that increase global warming increase temperatures also increase 
susceptibility to asthma. One in 10 Americans today is asthmatic. 
And I wish that we could look into the faces of the children and 
explain in their simple terms, I have 10 grandchildren, my oldest 
16 years old, just turned, has asthma. One of my younger grand- 
daughters has diabetes. 

What would I pay in taxes, what would any American spend in 
taxes if we could reverse the damage of an illness that they might 
carry through their lives? What does that cost? Is that cost realistic 
in terms of what we are talking about? No, listen. Job loss is a ter- 
rible calamity. My father lost his job many times during the De- 
pression years, and it was catastrophic in our family. But what is 
the final cost? That is the thing that we have to look at. 

And Madam Chairman, please accept the full presentation of my 
speech into the record. But I do want to commend you for getting 
this hearing going, for moving the process along, for saying, we 
have had enough, we are sounding the alarm, America, wake up, 
wake up, your kids are in danger, your families are in danger. And 
let’s get to work putting out that fire. 

Thank you. 

[The prepared statement of Senator Lautenberg follows:] 

Statement of Hon. Frank R. Lautenberg, 

U.S. Senator from the State of New Jersey 

Madam Chairman, global warming is threatening the future of our planet. It is 
harming our health. It is destroying our ecosystems. And it is threatening our secu- 
rity. 

In 2007, 11 former admirals and high ranking generals warned that climate 
change could “create sustained natural and humanitarian disasters on a scale far 
beyond those we see today.” 

Testifying before this committee, Retired Vice Admiral Dennis McGinn said, 
“Without bold action now to significantly reduce our dependence on fossil fuels, our 
national security will be at greater risk.” 

According to the CIA’s National Intelligence Council, as many as 800 million more 
people will face water or cropland scarcity in the next 15 years. 

Too many people fighting for too few resources breeds conflict, terrorism and war. 

The military itself could be affected by global warming. Major U.S. bases in Nor- 
folk, Virginia, and Diego Garcia in the Indian Ocean could be overrun with water 
if sea levels rise just a fraction of what scientists are predicting. 

Our dependence on oil causes global warming, but it also distorts our foreign pol- 
icy, leaving us at the mercy of the few countries that control most of the world’s 
oil — and putting the national security of our country at risk. 

It is up to us to leave the planet and our economy in better shape for generations 
to come. 

The world’s eyes are now on this committee to see if we will fulfill our duty — 
to pass a bill that addresses the greatest environmental challenge of our time. 

We must begin by setting a science-based target for reducing global warming pol- 
lution — and this bill gets that done. 

This legislation would reduce emissions in the U.S. by 20 percent by 2020. That’s 
a modest goal, but one rooted in science — and one that promotes clean energy today, 
not years down the road. 

We must invest in our transportation system — because cars, trucks, buses and 
other forms of transportation represent about one-third of the greenhouse gases gen- 
erated in the United States. 

This bill is a good start — but we’ve got to do a lot more to support cleaner and 
more efficient transportation like transit and rail. And we must invest in research 



89 


and development to create jobs in the short-term and give our country the tools to 
compete in the long-term. 

Investing in new technologies turns factories that are now dark into vibrant cen- 
ters of industry, building components like wind turbines and solar panels. In fact, 
from 1998 to 2007, the number of jobs in America’s emerging clean energy economy 
grew nearly two and a half times faster than overall jobs, and these jobs have re- 
mained strong during otherwise difficult economic times. 

In New Jersey alone, more than 2,000 clean energy companies employ more than 
25,000 people. 

I am proud to say that this bill increases funding for clean energy research and 
development by billions of dollars over the life of the bill. 

Madam, Chairman, every generation has a duty. Fighting climate change is ours. 
Nothing less than the security of our country, the future of our economy, the health 
of our families, and the survival of our planet are at stake. 

Senator Boxer. Thank you so much, Senator. 

Senator Barrasso. 

OPENING STATEMENT OF HON. JOHN BARRASSO, 

U.S. SENATOR FROM THE STATE OF WYOMING 

Senator Barrasso. Thank you so much, Madam Chairman. 

Madam Chairman, I have very serious concerns about American 
job losses under this Administration. We must view the promises 
of green job creation made by the President and the authors of this 
bill with legitimate skepticism. The Administration and experts 
told the American public and members in Congress that their eco- 
nomic stimulus bill would create millions of jobs across America. 
The economic stimulus package has failed to deliver on that prom- 
ise. In fact, the opposite has occurred. 

Jobs in western States have spiraled downward. In my home 
State of Wyoming, 8,000 jobs were projected to be created; instead, 
10,500 have been lost since the stimulus passed. Throughout the 
West, thousands of jobs have been lost in every western State. In 
fact, over 2.7 million jobs have disappeared nationwide since the 
stimulus package was passed. The situation is only getting worse. 
The $800 billion stimulus bill is not going to save the day. 

The Chair of the President’s Council on Economic Advisors, 
Christina Romer, testified last Thursday before the Congressional 
Joint Economic Committee. She stated the stimulus package’s im- 
pact on the economy will weaken from here on. She stated, most 
analysts predict that the fiscal stimulus will have its greatest im- 
pact on growth in the second and third quarters of 2009. By mid- 
2010, fiscal stimulus will likely be contributing little to growth. 

This is a stark admission by the Administration that we have al- 
ready seen the best we are going to see in terms of job growth from 
the President’s stimulus. This energy tax bill will be an American 
job killer as well. It is the next attempt by the Administration to 
promise jobs for all, create some for a few and let the rest of us 
fend for ourselves. 

The west and the fossil fuel reliant States in the South and the 
Midwest face a different future than the coastal States under this 
bill. The Director of the Congressional Budget Office, Dr. Douglas 
Elmendorf, gave America a glimpse of that future in a recent testi- 
mony before the Senate Energy and Natural Resources Committee. 
Dr. Elmendorf stated that the fossil fuel sector would mirror the 
massive job losses experienced by the manufacturing industry since 
the 1970s. He also stated that the fact that jobs turn up some- 



90 


where else for some people does not mean that there are not sub- 
stantial costs borne by people, by communities and by firms in af- 
fected industries and affected areas. You saw this in manufac- 
turing, and we will see this in response to the changes that this 
legislation will produce. 

The 1970s were not a happy time in the Rust Belt manufacturing 
States. No region of this country should have to suffer that again. 
So why are we setting up whole regions of the country to have a 
replay of that era? 

There is a lot of talk about green job creation in this energy tax 
bill to replace lost jobs. The few jobs created will not benefit the 
most affected. Once the jobs have been driven away from the towns 
and cities that rely on the fossil fuel industry, chain reactions will 
occur for the folks who live there. The people of Wyoming will not 
accept this outcome. So I urge my colleagues to consider what has 
already been stated by the non-partisan Congressional Budget Of- 
fice. This massive energy tax is a job killer for States that produce 
the red, white and blue energy that our Nation relies upon, and all 
of those people who depend upon fossil fuels. 

Thank you, Madam Chairman. 

Senator Boxer. Thank you very much, Senator. 

Senator Merkley. 

OPENING STATEMENT OF HON. JEFF MERKLEY, 

U.S. SENATOR FROM THE STATE OF OREGON 

Senator Merkley. Thank you very much, Madam Chair. I appre- 
ciate your leadership and Senator Kerry’s leadership and delibera- 
tions that have led us to this point to have a bill ready to debate 
and consider in detail in public. Certainly, these many months of 
intensive efforts, both last year and this year, have prepared to this 
point. 

But there is a moment when you need to lay out a bill before the 
public and have the full conversation. I appreciate that you all 
have taken us forward to that point today. 

Many say that this bill is very complicated, and indeed, energy 
touches virtually every aspect of our economy. But this bill can be 
reduced to a series of fairly clear choices. It is a choice between 
clean air or dirty air. It is a choice between investing a billion dol- 
lars a day in red, white and blue American-made energy or sending 
that billion dollars a day overseas to countries like Venezuela and 
Saudi Arabia and other countries that don’t always share our na- 
tional interests. 

This bill is a choice of creating jobs for Americans or sending 
those jobs overseas. It is a choice between a strong, secure energy 
independent America or a weaker, oil addicted America. It is a 
choice between planetary stewardship that serves our ecosystems 
and human civilization well or a rise in the Earth’s temperature 
that is devastating for ecosystems and for human civilization. 

This bill represents a choice between a forward looking American 
leadership that repositions our energy economy to make America 
an economic powerhouse in the future or backward looking Amer- 
ican policies that protect and sustain an inefficient energy status 
quo that will undermine our success in the coming generation. 



91 


Here in this building, we often wrestle with short-term choices 
versus long-term vision. But our children get this. Every university 
I have been to, when I ask the students what their top concern is, 
they always weigh in that we need to act on climate change. They 
get it because they have seen the science. We simply have to look 
at the Arctic ice, the Antarctic ice, the amount of carbon dioxide 
and the acidification of the ocean. Our glaciers, our permafrost, the 
rate of carbon dioxide buildup in the environment. Each one of 
these clear, significant factors can only be missed if you shut your 
eyes or put your head in a hole in the ground. 

Now, some say that this bill moves too fast. The aim is 20 per- 
cent reduction below 2005 carbon dioxide levels by 2020. We are al- 
ready closing on in 9 percent below 2005 levels. That means this 
bill is saying, let’s move 11 percent more over the next 11 years. 
That is just 1 percent per year. That is not an overly aggressive 
goal for us to undertake as a Nation. 

In fact, you could argue that this bill is not moving fast enough. 
The Intergovernmental Panel on Climate Change said that to limit 
the probability of reaching a temperature increase over 2 percent, 
developing countries should reduce their C0 2 by 2020 by 25 per- 
cent below the 1990 level. Well, to compare apples to apples, this 
bill will put us at 7 percent below 1990 by 2020, not 25 to 40 per- 
cent. 

We are taking and setting up a framework that moves us for- 
ward on a vision of reducing carbon dioxide, but few could argue 
that this bill is overly aggressive. We need to understand today 
what our children already understand, that this is a debate about 
the security of our Nation, about how clean our air is, about wheth- 
er we create American jobs, about whether we have a strong econ- 
omy in the future, and about whether we are good stewards of our 
planet for the benefit of our ecosystems and human civilization. I 
hope we in this committee can make the right decision. 

Thank you, Madam Chair. 

Senator Boxer. Thank you, Senator. 

Next we will hear from Senator Vitter, and then Whitehouse, 
Gillibrand if she returns, and Cardin. And then we will get to the 
panel. 

Senator Vitter. 

OPENING STATEMENT OF HON. DAVID VITTER, 

U.S. SENATOR FROM THE STATE OF LOUISIANA 

Senator Vitter. Thank you very much, Madam Chair. 

Like all the members on this side of the dais, I also support an 
aggressive national energy policy that looks to dramatically de- 
crease our dependence on foreign sources and aggressively get us 
beyond high carbon fuels. And like other members here, I think 
that needs to focus on conservation, nuclear, natural gas and new 
technologies like electric cars and many other advancing new tech- 
nologies. I think that sort of approach, that sort of national energy 
strategy, would have broad based support of the American people 
and bipartisan support from Congress. 

Unfortunately, that is not what we are talking about today. I 
think what we are talking about today, this sort of cap-and-trade 
proposal is very different and doesn’t have that broad based sup- 



92 


port. I believe this cap-and-trade concept is a bad idea in any cli- 
mate, and is a particularly horrible idea in this deep recession, as 
unemployment continues to grow and hover around 10 percent. 

I want to mention four concerns in particular with this and simi- 
lar legislation. First of all, something about the science. I believe 
there is certainly one thing that the science is absolutely clear on, 
and it is beyond debate. And that is, if countries like China and 
India and Russia are not part of a carbon reduction global pro- 
gram, that it does not matter what we do. And that the only effec- 
tive actions like this will be to dramatically harm our economy. 

If there is any suggestion in the science to the contrary, I would 
love to hear it, and I would love to hear forecasts from our Admin- 
istration witnesses regarding scenarios where China, India, Russia 
and similar powers do not reduce carbon emissions. It has been 
made perfectly clear by them, directly from their mouths, that they 
have no plans to join such a global regime. And all three are ag- 
gressively pursuing natural resource assets around the world and 
dramatically increasing energy production from fossil fuels. 

Secretary Chu mentions in his testimony that China is spending 
$9 billion a month on clean energy. The other side of that coin, the 
bigger side of that coin is that they are building two coal-fired 
power plants a month and securing oil resources around the globe. 

Point No. 2 is the cost of all this. I think it is very significant 
that the Obama administration Treasury Department developed a 
cost estimate. And their cost estimate, not a Republican one, not 
a Heritage Foundation one, but their cost estimate is that the cost 
of cap-and-trade would be over $1,700 a year per household. This 
would roughly be the equivalent of hiking income taxes by 15 per- 
cent. Certainly a little more than a postage stamp a day. And 
Treasury stated specifically that “Economic costs will likely be on 
the order of 1 percent of GDP, making them equal in scale to all 
existing environmental regulation.” 

Others have agreed with this, including the President on the 
campaign trail: “Under my plan of a cap-and-trade system, elec- 
tricity rates would necessarily skyrocket. Whatever the plants 
were, whatever the industry was, they would have to retrofit their 
operations. That will cost money. They will pass that money on to 
consumers.” “Cap-and-trade would increase the cost of energy.” 
From Secretary Tim Geithner. “Under a cap-and-trade program, 
firms will not ultimately bear most of the cost of the allowances, 
but instead would pass them along to their customer in the form 
of higher prices.” That is Peter Orszag, as Director of CBO. Of 
course, he is now the Obama administration head of OMB. 

“Cap-and-trade is a tax, and it’s a great big one.” John Dingell. 
And Charlie Rangel, “Whether you call it a tax, everyone agrees 
that it’s going to increase the cost to the consumer.” 

Point No. 3 is putting points No. 1 and two together. Foreign 
competition does nothing like this. We dramatically increase taxes 
and costs. And obviously, that significantly hurts jobs and pushes 
jobs overseas. 

Thank you, Madam Chairman. 

[The prepared statement of Senator Vitter follows:] 



93 


Statement of Hon. David Vitter, 

U.S. Senator from the State of Louisiana 

Thank you, Chairman Boxer; and I would like to thank the Administration wit- 
nesses for their testimony here today and their candor in this most important de- 
bate. 

As a recently obtained Treasury Department analysis of cap-and-trade stated, 
“Economic costs will likely be on the order of 1 percent of GDP, making them equal 
in scale to all existing environmental regulation.” As unemployment is headed up- 
ward of 10 percent the impact of further job losses by a massive new regulatory pro- 
gram could not be overstated. 

“Cap-and-trade” is potentially a new stealth tax in the order of magnitude of more 
than $1,700 per American household annually. American families can look forward 
to an increase in their electricity bills, their gas bills, their food bills and their util- 
ity bills. It is clear that most Americans’ standard of living will be reduced. 

It doesn’t matter if the study is done by the Energy Information Administration, 
the Congressional Budget Office, the National Black Chamber of Commerce, the Na- 
tional Association of Manufacturers, the Brookings Institute or the Heritage Foun- 
dation — every legitimate economic analysis says that this is a bad idea. The human 
impact of these new regulations, job losses, and the increased price of energy should 
never be marginalized or ignored. 

Senator Gillibrand wrote an insightful op-ed last week in the Wall Street Journal 
titled “Cap and Trade Could Be a Boon to New York.” This article provided impor- 
tant insight into who will make money and how much. The Senator from New York 
stated that “carbon permits could quickly become the world’s largest commodities 
market, growing to as much as $3 trillion by 2020.” That is $3 trillion that has to 
be generated by the work of America’s farmers, refiners, miners, small businesses 
and manufacturers and then redistributed to Wall Street. It will perhaps be the 
greatest transfer of wealth in U.S. history. And it may very well he the greatest 
scam ever thrust on the people of the United States. This program would be the 
equivalent of TARP in perpetuity for a handful of financial institutions that have 
already been bailed out once. And you don’t need a Republican to tell you that. 

Senator Dorgan recently stated that “I know the Wall Street crowd can’t wait to 
sink their teeth into a new trillion-dollar trading market in which hedge funds and 
investment banks would trade and speculate on carbon credits and securities. In no 
time they’ll create derivatives, swaps and more in that new market. In fact, most 
of the investment banks have already created carbon trading departments. They are 
ready to go. I’m not.” Senator Dorgan further stated that “For those who like the 
wild price swings in the oil futures market, the unseemly speculation in mortgage- 
backed securities, or the exotic and risky financial products like credit default swaps 
that pushed our economy into the ditch, this cap-and-trade plan will be the answer 
to their prayers.” 

I look forward to hearing from the Administration on what programs they plan 
on cutting to pay for a transfer in our economy from energy jobs that generate mas- 
sive amounts of wealth to energy jobs that require massive amounts of subsidies. 
I also look forward to the Administration discussing China’s purchase of mineral re- 
sources around the world, including rare earth minerals. As well, I am not aware 
of any solar project or wind mill that doesn’t require mined or refined materials or 
inputs that are derivatives from oil and natural gas. 

The CBO has stated that mining and refining jobs will be among the most im- 
pacted by the proposed cap-and-trade program. However, nearly every product 
made, farmed, built, and manufactured requires some derivative from oil and nat- 
ural gas or other minerals. How in the world can it be strategically beneficial for 
the United States to become more dependent on mined and refined products from 
foreign countries? 

Secretary Chu mentions in his testimony the International Energy Agency in his 
support for renewable energy technologies. I wonder why he fails to mention that 
the same agency has recommended that Germany end its solar subsidies that will 
total $115.5 billion by 2013. If the U.S. were to take the same approach as Ger- 
many, U.S. consumers could expect their electricity bills to increase by 100 percent. 
The Administration’s contention is that a cap-and-trade system along with signifi- 
cant subsidies will create a new industry and a lot of high tech jobs. Yet Germany’s 
solar producers are now scaling back as they are crowded out by Chinese manufac- 
turers. 

A critical point in this whole debate is that China, India and Russia have made 
unequivocally clear that they have no intention of agreeing to a cap on carbon emis- 
sions. As well, all three are aggressively pursuing natural resource assets around 
the world and increasing energy production from fossil fuels. It is silly to think that 



94 


U.S. businesses will be able to compete on the international level when they are 
subject to carbon caps and regulation, increased energy costs and an easily manipu- 
lated market scheme. Secretary Chu mentions in his testimony that China is spend- 
ing $9 billion a month on clean energy. They are also building two coal-fired power 
plants a month, are increasing nuclear power generation and are securing oil re- 
sources across the globe. 

Secretary Chu also mentions Denmark as an example, a country where electricity 
prices are more than 200 percent higher than they are in the United States. One 
recent study shows that each wind related job in Denmark is taxpayer subsidized 
at the rate of $90,000 to $140,000 per job. In fact, the Danes pay more for their 
power than anyone in the European Union. 

Despite my concerns with the idea of a cap-and-trade program, I do support in- 
vestment and research in renewable technologies. I do believe a robust plan for in- 
vestment should be in place, but to do so we must not be borrowing money from 
China or stealing money from American families under the guise of “global warm- 
ing.” The greatest opportunity for investment in new technologies is revenue gen- 
erated from increased domestic energy production. Recent analysis suggests that in- 
creased domestic resource production could represent $8 trillion in GDP, $2.2 tril- 
lion in incremental tax receipts, and perhaps 2 million jobs or more. All without bor- 
rowing a dime or increasing taxes even a penny. 

Finally, there are significant issues that need to be raised and questions that need 
to be answered in regard to this program. Some of those questions include: 

(1) Who are the winners and losers under cap-and-trade? 

(2) What States benefit, and what States are adversely impacted? 

(3) How does it affect the U.S. strategically to be importing more refined mineral 
products and refining less domestically? 

(4) How are Federal and State treasuries affected by moving from industries that 
generate massive amounts of wealth to industries that require massive amounts of 
subsidies? 

(5) Given that reliable low cost energy is one of the greatest equalizers in the his- 
tory of mankind, how are families impacted by dramatically increasing costs? 

(6) Who are the benefactors of any “third party” certifying provisions, and how 
much money are they anticipating receiving? 

(7) Why are Administration officials claiming that “we must reduce our carbon 
emissions by 80 percent by mid-century to stabilize atmospheric greenhouse gas con- 
centrations” when there are no models or studies to support such statements, espe- 
cially without similar reductions from China, India or Russia? 

(8) Who are the major investors in the Chicago Climate Exchange, and in what 
countries are the assets held? 

(9) Why not a single one of the computer models predicted the stabilizing, if not 
cooling, atmospheric temperatures the world has experienced over the last 10 years? 

(10) If the United States is to sign a binding international agreement, what free- 
doms and pillars of the democratic process are we asking American citizens to cede 
to an international body? 

Thank you, and I look forward to asking questions of these witnesses. 

Senator Boxer. Thank you very much, Senator. 

Senator Whitehouse. 

OPENING STATEMENT OF HON. SHELDON WHITEHOUSE, 
U.S. SENATOR FROM THE STATE OF RHODE ISLAND 

Senator Whitehouse. Thank you, Madam Chairman. 

President Obama said last week at MIT, everyone in America 
should have a stake in legislation that can transform our energy 
system into one that is far more efficient, far cleaner and provides 
energy independence for America. The letters and phone calls I re- 
ceived from constituents in Rhode Island overwhelmingly support 
clean energy legislation and demonstrate the momentum growing 
behind this effort. 

Rhode Islanders and Americans across our Nation acutely under- 
stand the benefits of becoming the world’s leader in clean energy 
technology and the risks of failing in that endeavor. Some States, 
like Rhode Island, transitioned at their own expense to cleaner en- 
ergy years ago. Other regions of the country are new to this en- 



95 


deavor. But there is emerging a shared sense of purpose across the 
country. Even my colleagues from our coal States, on and off this 
committee, are seriously engaged in this discussion for the first 
time. 

Americans are brought together by our common understanding 
that our current fossil fuel energy habit is not sustainable and by 
our common recognition that America can and should lead the 
world to move to a clean energy economy. 

The United States has always been at the forefront of techno- 
logical and economic advancement, from Slater Mill at Pawtucket 
to the world’s first automobile and airplane, to air conditioning and 
the light bulb. We put the hand of man on the Moon, on Mars and 
on Venus and opened the computer era with the invention of the 
microprocessor and the Internet. It is in America’s DNA to inno- 
vate. 

The next great economic revolution is the race to clean energy. 
Yet America continues to rely today on the same fuels and energy 
sources that fed the manufacturing centers and steam engines of 
the Industrial Revolution over a century ago. Oil still accounts for 
approximately 40 percent of our total energy needs, and 70 percent 
of this oil is imported from foreign countries, many of whom, to put 
it mildly, are not committed to our best interests. 

But we fed the flow to the oil cartel of hundreds of billions of dol- 
lars rather than step forward into the clean energy economy that 
beckons, promising clean, abundant, renewable American energy 
sources. Millions of hard working Americans could be back on the 
job, building and servicing an American clean energy infrastruc- 
ture. 

In the last 10 years, jobs in the clean energy sector have grown 
at a rate nearly two and a half times faster than overall jobs. And 
these jobs can be created anywhere in the country, including States 
like my own State of Rhode Island, where jobs are now most 
scarce. We have only begun to scratch the surface. There is strong 
and growing domestic demand for wind turbines, solar panels and 
advanced batteries. Yet almost half our turbines are imported. 
Only 1 of the top 10 solar component manufacturers calls the 
United States home. And China, Japan and Korea are taking the 
lead in battery research. 

As John Doerr testified before this committee, if you list today’s 
top 30 companies in solar, wind and advanced batteries, American 
companies hold only 6 spots. The Clean Energy Jobs and American 
Power Act is key to unshackling America from implicit subsidies to 
dirty foreign fuels and putting us on the path toward prosperity 
and world economic leadership. 

History has stood us at this point of choice. Winston Churchill 
described those small agate points on which the balance of the 
world turns. We are at one now. We can reach to the clean energy 
future that beckons, pave the way for jobs and energy independ- 
ence at home and show leadership in the world economy abroad. 
Or we can sit idle, beguiled by the money and spin of polluting in- 
dustries, and let destiny’s moment pass. The right choice is clear, 
and I am confident that we will make it, perhaps ultimately in bi- 
partisan fashion. 



96 


I hope we can act soon, and I for one have not lost hope that 
buoyed by a success on health care reform, we can turn swiftly and 
with optimism to meeting our responsibilities on this front. I con- 
cur with Senator Kerry that we are not moving too quickly. By all 
reasonable measures we are all moving, and for a long time have 
been moving too slowly. 

Thank you, in particular, Madam Chairman, for your inspira- 
tional, collegial, passionate and determined leadership. I yield the 
remainder of my time. 

Senator Boxer. Thank you so very much. 

Senator Sanders has come back to join us. We welcome you back, 
and then you will speak now and then Senator Cardin, and then 
we will get to our panel. 

OPENING STATEMENT OF HON. BERNARD SANDERS, 

U.S. SENATOR FROM THE STATE OF VERMONT 

Senator Sanders. Thank you, Madam Chair. Let me just echo 
what Senator Whitehouse has just said. This has been an extraor- 
dinary process, and I thank you and Senator Kerry for the open- 
ness of that process. 

The issue that we are dealing with today is very different than 
many of the other issues that we deal with. Do you know why? Be- 
cause what we are dealing with is not a political compromise, it is 
not just trying to get votes. You are dealing with science. And at 
the end of the day, we can have a bill passed and have a great cele- 
bration in the White House, and it may not be good enough. Be- 
cause as you know, Madam Chair, what we are hearing from vir- 
tually all of the scientists that come before this committee, what 
are they telling us? What they are telling us is that, we told you 
in the past that the problem was serious, but we underestimated 
the problem. That if we do not act aggressively, the planet that we 
are leaving to our children and grandchildren will be a planet se- 
verely damaged in terms of drought, in terms of disease, in terms 
of flood, in terms of extreme weather disturbances. According to the 
CIA, in terms of national security issues. 

And the question is, do we have the brains and the courage to 
address that crisis? And at the same time understand that in terms 
of our economy, what we are doing is preventing hundreds and 
hundreds of billions of dollars of damage a year while, as we go for- 
ward, we create millions of good paying jobs. That seems to me a 
no-brainer. 

So the opportunity that we have right now in terms of energy ef- 
ficiency, in my State of Vermont right now, under normal economic 
circumstances, we consume less electricity now than we did in the 
past, because we have been smart on energy efficiency. And you 
know what? We are creating jobs. The Department of Energy gave 
a small company in Vermont a grant for capacitors as part of hy- 
brid cars. We are creating new jobs doing that, and we thank you 
for that grant. 

There is a windmill company in the State of Vermont making 
wind turbines on the cusp of massive growth providing wind tur- 
bines to Alaska and other remote areas. We are creating jobs. Our 
rail system today is behind Europe, behind Japan. How many new 



97 


jobs do we create as we rebuild our rail system and build the trains 
that we need right here in the United States of America? 

Secretary Salazar has told us that we can produce almost 29 per- 
cent of the electricity in this country from solar thermal plants in 
the southwestern part of this country. How many thousands of new 
construction jobs do we create? We are importing hundreds of bil- 
lions of dollars of oil every single year from foreign countries, hun- 
dreds of billions of dollars. How many new jobs do we create where 
we invest those hundreds of billions of dollars in the United States, 
creating a new energy system? 

This, my friends, is a no-brainer. The science is there, the eco- 
nomics is there, the job creation is there. And if we do not seize 
this moment to do the right thing, history will look back at us, and 
our children and our grandchildren will say, where were you as 
this planet undergoes catastrophic damage? We can do it, and I do 
not accept the argument of those on the other side who say this is 
a negative for the economy. This is a positive for the economy. 

So Madam Chair, I want to thank you, I want to thank Senator 
Kerry for your very hard work. And we are going to make this hap- 
pen. Thank you. 

Senator Boxer. Senator, thank you so very much. 

Senator Cardin. 

OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, 

U.S. SENATOR FROM THE STATE OF MARYLAND 

Senator Cardin. Madam Chair, let me also add my congratula- 
tions, and thanks for your leadership and Senator Kerry’s leader- 
ship. All of us want to make sure we get it right. 

But I just hope my colleagues understand the urgency of this 
issue. We have to act. We can’t just talk about this. We have to 
act. My friend from Ohio and I were together at a meeting with our 
European friends. They talked about the urgency in a term that 
you don’t hear often hear about climate migrants, people who are 
being forced to leave their homes because of drought and flooding, 
causing stability issues in Africa and Asia and Europe. 

Now, I can take you right here to Maryland, to Smith Island, 
Maryland, and you are going to see potential climate migrants 
there, as their island is disappearing because of sea level increases 
due to global climate change. And of course, we can all give exam- 
ples of why it is urgent for us to act in our own individual States. 
I talk to our watermen who tell me that with the rising tempera- 
tures in the Bay, it is become more and more difficult for juvenile 
crabs to survive. 

So it is urgent that we act. I think my colleagues understand the 
urgency from a national security point of view. We are dependent 
upon imported oil, which jeopardizes the security of America. I 
think we all understand the economic threats that we go through. 
We are held hostage to oil, which affects our economy. 

So it is urgent that we get this right. My friend from Vermont 
makes a very compelling point about the economic impact of this 
legislation. It is going to be positive on jobs. I look at White Marsh, 
Maryland, where they are doing the new battery technology with 
a grant that the Department of Energy just recently awarded. I 



98 


thank the Secretary for that innovation, where we are going to lead 
in the creation of alternative ways to fuel our automobiles. 

Madam Chair, I just really want to take issue from my friend 
from Wyoming, as he used his numbers. I am going to ask unani- 
mous consent that the congressional research on job loss and infra- 
structure job creation on the stimulus be made part of our record. 
I just want to quote from one report on that. It says, “Based on two 
different estimating procedures, it found that the American Recov- 
ery and Reinvestment Act may have added some 1 million jobs to 
employers’ payroll in August, 2009, compared to what employment 
would have been in the absence of the legislation.” 

And my point is this: if we didn’t act, we don’t know how many 
jobs we would have lost in our economy. We do know that job 
losses have been reduced dramatically. Economists tell us the stim- 
ulus package worked. 

So on this bill, when we are dealing with energy policies, we 
know that American ingenuity will create jobs if given the right in- 
centive. And that is what this bill does: it gives the right incentive. 
It unleashes what America does best, and that is the economic in- 
genuity of its people in solving the problems of energy security, of 
dealing with the economic impact of energy and dealing with our 
environment. 

I just want to applaud the Chairman and Senator Kerry for the 
framework of this legislation. Because it provides a way in which 
we can deal with alternative and renewable energy sources. It rec- 
ognizes nuclear power. By having a friendly carbon footprint it is 
given priority in this legislation. And it allows us to invest in life- 
styles that are going to be important for America. 

All we need to do is visit any European capital and know we 
could do much better on transit here in America. Transportation 
represents 30 percent of the emissions of greenhouse gases, 70 per- 
cent of our oil use. We can do much better. And thank you, Madam 
Chair, because your bill gives us the opportunity to invest in that 
type of America that will make us more competitive in the future. 
You provide the resources to help consumers and energy intense in- 
dustries so we make the transition to polluter pays. Polluter should 
pay. But we want to make sure the consumers are protected. 

And I just want to mention one more aspect of this bill. It is def- 
icit neutral. You have provided to make sure that we are not going 
to burden our children and grandchildren by additional debt. Look, 
I hope we all can work together, Democrats and Republicans. This 
is an issue that America is asking us to solve. I think we have the 
blueprint to do it. Let’s get down to work. 

[The prepared statement of Senator Cardin follows:] 

Statement of Hon. Benjamin L. Cardin, 

U.S. Senator from the State of Maryland 

Madam Chairman, thank you for your hard work and commitment to working 
with your committee members to draft the legislation we are considering today. And 
to our partners in the Obama administration, thank you for your guidance and com- 
mitment to stemming climate change. I look forward to your testimony. 

Madam Chairman, we’ve all heard the saying, “necessity is the mother of inven- 
tion.” Well it applies to the United States of America right now. At this critical junc- 
ture in our Nation’s history, we face an economic crisis, an energy security crisis, 
and a global climate crisis. 



99 


The good news is that the solutions to these problems are intertwined with one 
another. And those solutions will come from new American ideas, new American in- 
dustries, and a careful approach to maintaining the health of our planet. 

I am confident that the work my colleagues and I have put into the legislation 
we are considering today will provide the legal framework, business incentives and 
consumer protections necessary to move America toward a more prosperous, secure, 
clean energy future. 

The bill sets ambitious yet essential targets for greenhouse gas emission reduc- 
tions. Through the expanded use of existing technologies, particularly in the area 
of energy efficiency, we can reach these near-term goals. 

The investments this bill makes in renewable and alternative energy sources over 
the life of the bill will help us achieve energy security, leave our grandkids a 
healthy planet and generate millions of new, well paying jobs in the clean energy 
and transportation sector. 

How? Well, for one, it will provide the regulatory certainty and incentives that 
the energy sector desperately needs to plan and develop the power generation and 
delivery systems for the future. This bill will create an environment that will spur 
innovation to develop greater domestic energy sources that are clean and affordable. 

I am very pleased that this bill makes a significant investment in transportation 
infrastructure efficiency and access to transit. The transportation sector is respon- 
sible for 30 percent of the United States’ greenhouse gas emissions and 70 percent 
of our oil use. 

This bill recognizes the role transit will play in reducing vehicle emissions. Ac- 
cording to the American Public Transportation Association, public transit currently 
saves 37 million metric tons of carbon dioxide emissions per year. If we are going 
to reach our targets for cleaner air and a cooler planet, we must invest in public 
transportation in this country. I fought hard to make sure this bill would boost 
funding for transit so that we can put more people on clean, efficient and convenient 
buses, trolleys, subways and rail systems. 

The bill helps also helps keep consumer costs low by mitigating cost increases to 
ratepayers and providing incentives for energy efficiency. The bill recognizes the 
need to provide for a smooth transition period as we move toward a clean energy 
economy. This means providing ratepayer cost protections against energy price in- 
creases while the energy sector works to shift toward cleaner energy production and 
more efficient energy technologies. 

The bill pays close attention to the needs of America’s agriculture sector. Farmers 
will play an essential role in meeting our emissions targets by developing offsets 
that they can sell to help capped carbon emitters meet their compliance require- 
ments. Additionally, the manager’s mark increases funding for supplemental agri- 
culture programs for farmers to participate in and receive financial benefits from 
when they engage in activities that help mitigate greenhouse gases, even if these 
activities or projects are not eligible as official offset projects. 

The threats climate change brings to our way of life are not theoretical to many 
Marylanders. Ask the people of Smith Island who are watching their island vanish 
under rising sea levels. Ask Maryland’s watermen whose way of life is disappearing 
as rising temperatures destroy the habitat the Chesapeake Bay’s fish, crabs, and 
oysters depend on. 

Their struggles are mirrored in communities around the globe where droughts, 
floods and other natural disasters are already destroying local economies and forc- 
ing people to change their way of life and even leave their homes. Dislocation, strug- 
gles over scarce resources: our Nation’s top national security minds tell us that cli- 
mate change is a real threat to our national security. 

This bill allocates critical funds to make sure our wild places and our wildlife do 
not disappear. It sets aside money to help States protect their residents against the 
impacts of climate change including protecting water supply, defending against sea 
level rise, and repairing infrastructure from the damage these changed conditions 
will create. It will allow us to invest in third world countries to protect their way 
of life and prevent the dislocation that could impact our own safety here, thousands 
of miles away. 

Congress has taken far too long to address our economic, energy security and cli- 
mate crises. This bill will address all three. I am proud of the effort that has gone 
into this bill to build consensus. I look forward to working with the Chairman to 
advance this bill through committee and eventually to the floor. Let’s get back to 
work! 

[The referenced information follows:] 



100 



Job Loss and Infrastructure Job Creation 
Spending During the Recession 


Linda Levine 

Specialist in Labor Economics 
October 2, 2009 


Congressional Research Service 

7-5700 

www.crs.gov 

R40080 


CRS Report for Congress 

Prepared for Members and Committees of Congress 



101 


Job Loss and Infrastructure Job Creation Spending During the Recession 


Summary 

After the long economic expansion that characterized much of the current decade, the nation 
entered its eleventh postwar recession in December 2007. The unemployment rate, which is a 
lagging economic indicator, did not start to rise until May 2008 when it jumped 0.5 percentage 
points to 5.5%. By December 2008, the unemployment rate exceeded 7.0% and well over 
600,000 jobs were lost — the biggest monthly decrease since December 1 974, when another deep 
recession was taking place. These labor market indicators and comments equating the latest 
recession to the Great Depression intensified congressional interest in passage of legislation early 
in 2009 aimed at encouraging creation of new jobs and warding off further loss of jobs. (See CRS 
Report R40655, The Labor Market During the Great Depression and the Current Recession.) 

To mitigate all but one recession since the 1 960s, Congress chose to increase federal spending on 
infrastructure. (See CRS Report 92-939, Countercyclical Job Creation Programs.) But, there are 
a number of issues associated with using expenditures on public works to quickly create jobs in 
times of recession. (See CRS Report R40107, The Role of Public Works Infrastructure in 
Economic Stimulus.) 

Public works expenditures traditionally have gone chiefly to construction activities (e.g., building 
highways and bridges, dams and flood control structures) which indirectly increase demand in 
industries that supply their products to construction firms (e.g., manufacturing). Today, the 
definition of infrastructure has been expanded to include green jobs, which include those in 
industries that utilize renewable resources (e.g., electricity generated by wind), produce energy- 
efficient goods and services (e.g., mass transit), and install energy-conserving products (e.g., 
retrofitting buildings with thermal-pane windows). 

A question that typically arises during congressional consideration of economic stimulus 
legislation is which approach produces the most bang for the buck. In the instant case, this means 
how many jobs might be supported by federal expenditures on traditional and green infrastructure 
projects. Once stimulus legislation is signed into law, the focus of Congress customarily turns to 
estimates of the number of jobs that result as federal funds are allocated to specific activities. 
Therefore, after briefly examining the trend in employment and unemployment since the 
recession’s -onset, the report turns to an in-depth look at estimates of job creation, including the 
limitations of the methodology often used to derive them and the difficulties associated with 
developing job estimates for green infrastructure in particular. The report closes with a review- of 
what is known to date about the number of jobs supported by infrastructure spending among other 
provisions in the American Recovery and Reinvestment Act (ARRA. P.L. 1 11-5). Section 1512 
requires entities that receive ARRA appropriations from federal agencies, totaling approximately 
S27 1 billion, to include in quarterly reports the number of jobs created or maintained as a result. 
Section 1513 requires the Council of Economic Advisors to report quarterly on the effect of 
ARRA provisions on employment and other economic indicators. 


Congressional Research Service 



102 


Job Loss and Infrastructure Job Creation Spending During the Recession 


Contents 

Employment and Unemployment Through Job Loss 1 

Infrastructure Spending and Job Creation Estimates 4 

Job Creation Estimates: What Are They? 5 

Some Caveats 6 

The Multiplier Effect 6 

Job Estimates and Construction Spending 7 

The Federal Highway Administration 7 

BLS Employment Requirements Table 8 

BEA’s Regional Input-Output Modeling System (RTMS II) 9 

Job Estimates and Green Infrastructure Spending 10 

Measuring Jobs Supported by Spending Provisions in the American Recovery and 
Reinvestment Act 12 

Tables 

Table 1. Payroll Jobs at Nonfarm Employers 2 

Table 2. Number of Payroll Jobs by Industry 3 

Table 3. Number of Direct and Indirect Jobs by State Dependent on an Expenditure of SI 
Billion in the Construction Industry 9 

Contacts 

Author Contact Information 13 


Congressional Research Service 



103 


Job Loss nnd Infrastructure Job Creation Spending During the Recession 


A fter the long economic expansion that characterized much of the current decade, the 

nation entered its eleventh postwar recession in December 2007. The unemployment rate, 
which is a lagging economic indicator, did not start to rise until May 2008 when it 
jumped 0.5 percentage points to 5.5%. By December 2008, it exceeded 7.0% according to data 
from the U.S. Bureau of Labor Statistics (BI.S). Well over 600,000 jobs were lost in December 
2008 — the biggest monthly decrease recorded by the BLS Current Employment Statistics 
program (CES) since December 1974, when another deep recession was taking place. 

The Business Cycle Dating Committee of the National Bureau of Economic Research, the official 
arbiter of peaks and troughs in the business cycle, announced at the end of November 2008 that a 
substantial and widespread decline in economic activity had begun a year earlier. December 2007 
marks both the end of the 73-month economic expansion that began in March 2001, and the 
beginning of the latest recession. As part of its announcement, the committee noted that it “views 
the payroll employment measure, which is based on a large survey of employers, as the most 
reliable comprehensive estimate of employment. This series [the CES] reached a peak in 
December 2007 and has declined every month since then.” 

The committee’s announcement intensified congressional interest in passage of legislation aimed 
at encouraging creation of new jobs and warding off further loss of jobs. So. too, did comments 
equating the recession to the Great Depression. (See CRS Rqiort R40655, The Labor Market 
During the Great Depression and the Current Recession.) 

To mitigate all but one recession since the 1960s, Congress chose to increase federal expenditures 
on infrastructure (public works), thereby directly raising demand for goods and services to offset 
the reduced demand of consumers. (See CRS Report 92-939, Countercyclical Job Creation 
Programs.) But, there are a number of issues associated with using spending on public works to 
quickly create jobs during a recession. (See CRS Report R40107, The Role of Public Works 
Infrastructure in Economic Stimulus.) 

When Congress considers spending on infrastructure to help stimulate a flagging economy, “how 
many jobs are created” is a commonly asked question. After first briefly examining trends in job 
loss since the latest recession began, this report focuses on job creation estimates associated with 
increased spending on traditional and so-called green infrastructure, placing a heavy emphasis on 
explaining the methodology often used to derive them and the difficulties associated with 
developing estimates for green infrastructure in particular. 

Once stimulus legislation is signed into law, the focus of Congress customarily turns to estimates 
of the number of jobs that result as federal funds are allocated to specific activities. In the case of 
the American Recovery and Reinvestment Act (ARRA. P.L. 1 1 1-5). Congress included language 
requiring entities that receive ARRA appropriations from federal agencies to report the number of 
jobs created or maintained as a result and requiring the Council of Economic Advisors to report 
on the employment and other economic effects of ARRA provisions. The report closes with a 
review of what is known to date about the number of jobs associated with the stimulus act. 

Employment and Unemployment Through Job Loss 

As shown in Table 1, employment on nonfarm payrolls has steadily declined since December 
2007. The number of job cutbacks intensified starting in late 2008. Of the 7.2 million jobs lost 
since the recession’s onset, the majority have disappeared since November 2008. 


Congressional Research Service 


1 



104 


Job Loss and Infrastructure Job Creation Spending During the Recession 


Table I. Payroll Jobs at Nonfarm Employers 

(seasonally adjusted employment in thousands) 


Year by Month 

Total Employment 

Private Sector Employment 

2007 



December 

138,152 

115,783 

2008 



January 

138,080 

115,689 

February 

137,936 

1 15,515 

March 

137,814 

115,373 

April 

137,654 

115,203 

May 

137,517 

1 14,029 

June 

137.356 

114,834 

July 

137,228 

115,691 

August 

137,053 

1 14,497 

September 

136,732 

114,197 

October 

136,352 

113,813 

November 

135,755 

113,212 

December 

135,074 

1 1 2.542 

2009 



January 

134,333 

111,793 

February 

133,652 

111,105 

March 

133,000 

110,457 

April 

132.481 

109,865 

May 

132,178 

109,573 

June 

131.715 

109,182 

July 

131,411 

108,936 

August 

I3l,2l0(p) 

108,754 

September 

I30,947(p) 

108.544 

Source: U.S. Bureau of Labor Statistics, data from the Current Employment Statistics program. 

Notes: (p) = preliminary. 



As is typical during economic downturns, employees in the goods-producing sector have been the 
most adversely affected. They saw their ranks shrink by almost 3.6 million between December 

2007 and September 2009. (See Table 2.) Workers in the sector’s construction industry began 
experiencing job losses before the economy-wide downturn began. Nonetheless, between the 
recession’s onset and September 2009, construction firms cut almost 1 .5 million jobs. Across all 
manufacturing industries, employment fell by 2, 1 million as well. Although manufacturing job 
losses have been widespread, two industries that produce durable goods — fabricated metal 
products (e.g., hardware, wire, and screws) and transportation equipment (e.g., motor vehicles 
and parts) — have been particularly hard hit. 


Congressional Research Service 


2 



105 


Job Loss and Infrastructure Job Creation Spending During the Recession 


Table 2. Number of Payroll Jobs by Industry 

(seasonally adjusted employment in thousands) 


Industry by 

Sector 

Employment, 

December 2007 

Employment, 

September 2009 (p) 

Goods-producing sector 

22.043 

18.465 

Mining and togging 

743 

708 

Construction 

7.523 

6,038 

Manufacturing 

13.777 

1 1,719 

Service-providing sector 

1 16,109 

1 12,482 

Trade, transportation and 
utilities 

26.725 

25,092 

Wholesale trade 

6.045 

5,649 

Retail trade 

15,568 

14,700 

Transportation and 
warehousing 

4,555 

4,178 

Utilities 

557 

565 

Information 

3,025 

2,826 

Financial activities 

8,243 

7,702 

Professional and business 
services 

18,109 

16,597 

Education and health services 

18,570 

19.31 1 

Leisure and hospitality 

13,551 

13,154 

Other services 

5,517 

5.397 

Government 

22,369 

22,403 


Source: U.S. Bureau of Labor Statistics, daca from the Current Employment Statistics program. 


Notes: (p)=preliminary. 

Employment in the service-providing sector most recently peaked in December 2007, when the 
recession began. Although some service-providing industries have continued to grow — utilities, 
education and health services — cutbacks elsewhere have far outweighed their gains. As shown in 
Table 2, these industries reported higher employment in September 2009 than at the start of the 
recession. In contrast, the financial activities industry began to lose jobs before the advent of the 
economy-wide downturn. This mirrors the above-mentioned trend in construction employment in 
part because real estate is a component of financial activities and it, like construction, has been 
hurt by the collapse of the housing market. Other components of financial activities, such as 
brokerage firms that packaged high-risk mortgages and the investors (e.g., banks) that purchased 
them, have been negatively affected by the housing market downturn as well. 

Despite a marked slowdown in the pace of job loss in recent months and the widely expressed 
belief that the recession ended this summer, the prospect of steady job growth beginning in the 
near term looks dim according to a CRS analysis of employment trends after the end of the prior 
ten recessions. In all but one instance. 


Congressional Research Service 


3 



106 


Job Loss and Infrastructure Job Creation Spending During the Recession 


“the number of jobs on employer payrolls fluctuated for months.... Sustained job growth 
occurred within three to five months of the start of seven recoveries. In sharp contrast, steady 
job growth did not commence until March 1 992 — 12 months after the July 1 990-March 1 99 1 
recession ended — and not until September 2003—22 months after the March-November 
2001 recession ended.” 1 

The unemployment rate in September 2009 rose to 9.8% from 5.0% in December 2007, according 
to RLS data derived from the Current Population Survey." The Blue Chip Economic Indicators 
reported that the latest consensus forecast among the nation’s leading business economists is that 
the unemployment rate will continue to rise to 10% or higher and “recede from that level only 
grudgingly” during the last six months of 2010. Most of these economists think it will not “be 
until the second half of 2012, or later, before the unemployment rate fulls below 7 percent on a 
sustained basis.” 3 

Infrastructure Spending and Job Creation Estimates 

When in response to a recession Congress has acted to create jobs by raising demand for goods 
and services through increased federal spending, it often has chosen to direct the funds to 
infrastructure (public works) activities. Other means of direct countercyclical job creation — 
employment tax credits, state revenue-sharing, and public service employment — have been relied 
on much less often. 4 

A more expansive definition of infrastructure than was used in the past is now under 
consideration. Historically, public works has been synonymous with heavy and civil construction 
activities (e.g., road and bridge building, flood control structures and dam building). Today, it 
includes so-called green jobs. Although numerous studies on the emerging green economy have 
been released in the last several years, no consistent definition of green jobs exists at present. 
Green jobs seemingly are those in and related to industries that utilize renewable resources to 
produce their outputs (e.g,, energy generated by wind, solar, and geothermal technologies) and 
jobs in and related to industries that produce energy-efficient goods (e.g., Energy Star appliances 
and equipment) and services (e.g., intra- and inter-city mass transit).' For this reason, the 
following discussion focuses on what is known about the job-generating impact of infrastructure 
spending broadly defined. 

The section below begins with an in-depth examination of how job creation estimates usually are 
developed. The focus then narrows to look at two models that can be used to calculate the number 
of jobs nationwide dependent upon demand in the construction industry among other industries, 
and one model that can be used to calculate the number of jobs by state dependent on the 
construction industry among other industries. The section ends by reviewing the difficulties that 
researchers encounter in estimating the number of jobs supported by expenditures on green 


! CRS Report R40798, Unemployment and Employment Trends Before and After the End of Recessions, by Linda 
Levine. 

2 Data from the Current Population Survey of households is available at http://stats.bls.gov/cps. 

"Recession Finished, Say Blue Chip Analysts," Daily Labor Report , September 10, 2009. 

4 CRS Report 92-939, Countercyclical Job Creation Programs , by Linda Levine. 

Related jobs include, for example, those in industries that manufacture wind turbines and install thermal-pane 
windows. 


Congressional Research Service 


4 




107 


Job Loss and Infrastructure Job Creation Spending During the Recession 


infrastructure and the consequent caution that should be taken when utilizing these estimates in 
particular. 


Job Creation Estimates: What Are They? 

Interest in how many jobs are created by a particular type of economic activity has surfaced when 
the economy is in a downturn and policymakers seek to compare the relative advantages of 
different stimulus options. It also has arisen when policymakers want to know the impact of 
shifting expenditures front one federal budget category to another (e.g., away from defense and 
towards social services progrants). Unless there is an increase in total spending, however, the 
number of jobs in the labor market would remain largely unchanged. 6 

Although there are other bases upon which to develop estimates of the number of jobs created by 
a given economic activity, an input-output (I-O) model of the economy often is utilized due to its 
cost-effectiveness. ' An 1-0 model describes the interrelationships between industries in the 
production process, showing how the dollar value of a sale is distributed across industries at a 
particular point in time. It thus reflects how much of the purchased product comes from final and 
supplier industries. An 1-0 table might show, for example, the dollar value of roof trusses 
produced by the veneer, plywood, and engineered wood products manufacturing industry and the 
dollar value of bricks produced by the clay product and refractory manufacturing industry used by 
the construction industry to erect residential buildings. 

The output requirements from each industry must then be converted to employment requirements. 
Employment requirements are derived from productivity estimates for each industry at a 
particular point in time. The total employment requirement associated with a given type of final 
demand (e.g., a water reuse program) is the employment in the industry producing the final 
product or service and in the supplier industries. In other words, it is an approximation of both the 
direct and indirect employment dependent upon/supported by the economic activity. It commonly 
is expressed as the number of jobs per billion dollars of expenditures valued in a particular year's 
dollars. 

Like an 1-0 table, an employment requirements table is a matrix of hundreds of columns and 
rows. Each column displays the number of jobs supported in each of the industry rows by an 
expenditure o f one billion dollars in the column industry. For example, one billion dollars spent in 
the construction industry supports (direct) employment in the various components of that industry 
(e.g., residential and commercial building, highway and bridge building) and (indirect) 
employment in the many industries that supply their goods and services to the construction 
industry (e.g., asphalt shingle manufacturing, fabricated metal bridge section manufacturing). An 
employment requirements table thus permits estimation of the varying impact of an expenditure 
on different industries and the varying impact of different kinds of expenditures. 


‘ Small differences' in the total number of jobs could occur at the same spending levels if the economic activities to 
{ from) which funds were being shitted were more (less) capital-intensive, for example. 

7 Another basis for estimating the impact of policy and other changes on the economy is conducting surveys. According 
to the US. Bureau of Economic Analysis (BBA), the advantage of the 1-0 approach to making impact estimates is the 
accessibility of the data sources required to develop the 1-0 model. 


Congressional Research Service 


5 



108 


Job Loss and Infrastructure Job Creation Spending During the Recession 


Some Caveats 

1-0 models freeze technology and productivity at a particular point in time. Thus, the job- 
generating potential of an economic activity undertaken today could differ from that of an earlier 
period if there were technological and productivity improvements in the intervening years. 
Similarly, the estimates often are stated in terms of the number of jobs created for every billion 
dollars of expenditures, but a billion dollars spent in one year could buy less (more) than a billion 
dollars spent in another year depending on changes in price levels over time. 

There also could be differences in estimated versus actual job creation because 1-0 models 
assume that resources are unlimited. If, for example, the economy was performing at a fairly high 
level with plants operating near full capacity and with fairly few workers unemployed, the actual 
number of new jobs might fall short of the estimate due to capital and tabor constraints. This is 
less likely to matter during a broad-based economic downturn. 

Further. 1-0 tables do not necessarily differentiate between imported and domestically produced 
goods. As a consequence, the domestic employment impact of expenditures might be overstated 
to the extent that inputs are imported. Similarly, 1-0 tables typically do not express employment 
in terms of full-time equivalents (i.e., both full-time and part-time jobs are counted equally). 

Thus, programs which draw upon industries that rely relatively more on part-time workers (e.g., 
retail trade) might appear to create more jobs than programs that draw to a greater extent on 
industries employing relatively more full-time workers (e.g., manufacturing). 


The Multiplier Effect 

A more comprehensive estimate of the number of jobs created by a particular type of economic 
activity has three components, namely, 

• the number of jobs directly attributable to the activity, 

• the number of jobs indirectly attributable to the activity, and 

• the number of jobs induced throughout the economy as a result of the activity. 

Induced jobs are those dependent upon the purchases of persons in direct and indirect jobs. For 
example, workers who are directly or indirectly employed as the result of a highway construction 
program might spend some portion of their wages in their communities at grocery stores, auto 
repair shops, and movie theaters. 

Estimates of induced jobs or the multiplier are considered tenuous. To calculate the multiplier 
effect, one must estimate how much of the additional money earned by directly and indirectly 
employed workers will likely be spent versus saved. The actual number of jobs created by this 
added spending will further depend on economic conditions (e.g., the availability of labor, the 
inflation rate). As a result, there are widely varying estimates of the multiplier effect and those job 
creation studies that include induced employment utilize different multipliers. 


Congressional Research Service 


6 



109 


Job Loss and Infrastructure Job Creation Spending During the Recession 


Job Estimates and Construction Spending 

The Federal Highway Administration 

Perhaps the most widely known estimate of the employment impact of federal spending on out- 
nation ’s roads comes from the Federal Highway Administration (FHWA). Although the FHWA 
twice updated its 1997 analysis, which estimated that $1 billion of federal-aid highway 
expenditures plus a S250 million state match supported 47,575 jobs, some proponents of 
stimulating job growth through increased federal spending on infrastructure continue to use this 
figure. The most recent update by the FHWA to 2007 indicates that a SI. 25 billion expenditure on 
highway construction consisting of SI billion from the federal government and S250 million from 
state government could support 34,779 jobs. If a state match is not required, “then SI billion in 
Federal funds supports 27,800 jobs.” 8 The jobs number has decreased over time in part because of 
increases in the price of inputs, such as asphalt and diesel fuel. 

The FHWA breaks down the estimate of 27,822 jobs per billion dollars of federal spending on 
highways as follows; 

• 9,536 construction-oriented jobs (i.e., jobs at construction companies working on 
the projects and at businesses that provide direct inputs to the projects such as 
asphalt, concrete, and guard rails); 

• 4,324 jobs in supporting industries (i.e., employment at firms that provide inputs 
to the industries directly providing the materials and equipment utilized in 
highway construction such as producers of sheet meta! who supply the 
manufacturers of guard rails); and 

• 13,962 induced jobs (i.e., jobs throughout the economy dependent upon 
consumer expenditures from the wages of workers in “construction-oriented” and 
“industry-supporting” jobs). 

Thus, the multiplier effect accounts for one-half of the total estimate. 

The FHWA notes one caveat about 1-0 analysis in addition to those mentioned above, that is, the 
job estimate “utilizes the national average mix of construction materials and labor inputs. Specific 
projects and local utilization ratios will alter the estimated number of jobs supported.” For 
example, a different combination of materials and number of workers might be required for road 
resurfacing projects compared to bridge building or commuter rail projects. 

The FHWA also states that 

[t]he employment figures have recently been used as a justification for including highway 
spending in an economic stimulus package. But with the exception ofshort-term resurfacing 


* U.S. Department of Transportation, Federal Highway Administration, Employment Impacts of Highway Infrastructure 
Investment, p. 1 , http://www.fhwa.dot.gov/policyotps/publications.htm. 

J U.S. Department of Transportation. Federal Highway Administration, Employment Impacts of Highway Infrastructure 
Investment, p. 2, http:. 7www.fhwa.dot.gov/policy/otps/publications.htm. 


Congressional Research Service 


7 



110 


Job Loss and Infrastructure job Creation Spending During the Recession 


and preservation projects, highway funds spend out slowly, with only 27% of a project, on 
average, outlaying in the first year. 10 


BLS Employment Requirements Table 

In recognition of the fact that “people want to assess the impact on employment of different 
policies or actions,” the U.S. Bureau of Labor Statistics (BLS) makes available electronically 
free-of-charge to the public the employment requirements tables it develops as part of its 
employment projections program." 1-0 and employment requirements tables developed and 
utilized by others often are proprietary and not made widely available. 

The employment requirements tables are based on the official 1-0 tables for the nation that the 
U.S. Bureau of Economic Analysis (BEA) develops every five years. BLS takes the latest 
national 1-0 table available from BEA - in this case, 1997 - and updates it to reflect more recent 
production and distribution technologies. It then utilizes the updated 1-0 table and recent labor 
productivity data to develop an employment requirements table. Because the base year for the 
most recently published employment projections is 2006, the latest employment requirements 
table reflects 2006 technologies of production and distribution as well as labor productivity. 

The BLS employment requirements table provides information for the construction industry as a 
whole. The construction industry, according to the North American Industry Classification 
System, is composed of three major subdivisions: 

• construction of buildings (residential and nonresidential), 

• heavy and civil engineering construction (highway, street, and bridge 
construction; utility system construction; construction of flood control structures, 
dams, and hydroelectric power generation facilities), and 

• specialty trade contractors (foundation, structure, and building exterior 
contractors; building equipment contractors; building finishing contractors). 

The BLS employment requirements table shows 1 1 ,768 jobs directly and indirectly dependent 
upon SI billion of spending on construction. A majority of the jobs are in the construction 
industry itself (i.e., 6,925 direct jobs). 

The figure from the BLS employment requirements table for construction expenditures (1 1,768) 
is somewhat lower than the direct and indirect jobs figure for highway expenditures from the 
FHWA (1 3,860). Potential explanations for the disparity include differences in industry definition, 
data sources, method of updating the model, and time period. 

The employment requirements available from BLS do not break out other types of construction 
that have been discussed as part ol'a federal job creation package (e.g., public school 
construction). BLS formerly conducted surveys to estimate full-time year-long employment 
associated with a variety of different construction activities, including new' schools, hospitals, 


K U.S., Employment Impacts of Highway Infrastructure Investment, U.S. Department of Transportation, Federal 
Highway Administration, p. 2. http://www.t1iwa.diA.gov/poticy/otps/pubNcations.htm. 
n U.S. Bureau of Labor Statistics, Layout and Description for 201-order Employment Requirements Tables , 
Washington, D.C., December 2007. p. 3, http://stats.bis.gov/einp/empind4.htin 


Congressional Research Service 


8 



Ill 


Job Loss and Infrastructure Job Creation Spending During the Recession 


water and sewer facilities, roads, mass transit, and maintenance and repair construction. The 
survey information was last updated a few decades ago, however. 

BEA's Regional Input-Output Modeling System (RIMS II) 

From its Regional Input-Output Modeling System (RIMS II), the BEA produces estimates by 
geographic area of the employment, earnings, and output dependent on additional spending in 
hundreds of different industries. 12 For a fee to most parties, BEA currently utilizes either the 1997 
benchmark 1-0 for the nation or the 2006 annual 1-0 for the nation adjusted by 2006 data from its 
regional economic accounts to provide these estimates at the subnational level. 13 

As shown in Table 3. the number of jobs directly and indirectly supported by an expenditure of 
SI billion in the construction industry in a given state ranges widely. The main reason for the 
disparity in job creation estimates is that each state has a different mix of industries within its 
borders. As a consequence, one state varies from the next in its capacity to supply all the 
intermediate goods needed to carry out construction projects. A secondary explanation is that 
earnings vary by state. 


Table 3. Number of Direct and Indirect jobs by State Dependent on an Expenditure 
of $1 Billion in the Construction Industry 


State 

Number of Jobs 

State 

Number of Jobs 

Alabama 

15,851 

Montana 

16,127 

Alaska 

11.009 

Nebraska 

13,946 

Arizona 

12,238 

Nevada 

11,459 

Arkansas 

1 5,306 

New Hampshire 

12,374 

California 

1 2,289 

New Jersey 

11,118 

Colorado 

12,575 

New Mexico 

14,279 

Connecticut 

10,709 

New York 

10,106 

Delaware 

9,518 

North Carolina 

15,555 

District of Columbia 

1,874 

North Dakota 

13,500 

Florida 

13,127 

Ohio 

14.391 

Georgia 

14,224 

Oklahoma 

16,232 

Hawaii 

1 1,614 

Oregon 

13,184 

Idaho 

1 5,860 

Pennsylvania 

1 2,390 

Illinois 

11,916 

Rhode island 

10,767 

Indiana 

13,747 

South Carolina 

15,319 


12 for additional information on RIMS 11 see BEA, Regional Multipliers: A User Handbook for the Regional Input - 
Output Modeling System* http://wavw.bea.gov/scb/pdf/regional/perine/meth/rims2. pdf. 

More specific detail by industry is available from the 1997 benchmark 1-0 than from the annual 1-0. Therefore, 
Table 1 (Number of Direct and Indirect Jobs Per $ 1 Million of Output Produced by the Water, Sewage and Other 
Systems Industry) in CRS Report R40I07, The Role of Public Works Infrastructure in Economic Stimulus , was drawn 
from the 1997 benchmark 1-0 because the 2006 annual i-0 provides data only for the utilities industry as a whole. 


Congressional Research Service 


9 



112 


Job Loss and Infrastructure Job Creation Spending During the Recession 


State 

Number of Jobs 

State 

Number of Jobs 

Iowa 

14,330 

South Dakota 

15,316 

Kansas 

13,625 

Tennessee 

14,556 

Kentucky 

15,039 

Texas 

1 2,985 

Louisiana 

13,731 

Utah 

14,692 

Maine 

15,988 

Vermont 

14,883 

Maryland 

10,687 

Virginia 

1 2,085 

Massachusetts 

10,714 

Washington 

12,171 

Michigan 

13,354 

West Virginia 

13,834 

Minnesota 

12,998 

Wisconsin 

13,673 

Mississippi 

15,357 

Wyoming 

13,091 

Missouri 

13,241 

United States 

14,315 


Source: Prepared by CRS from RIMS II estimates supplied by the BEA Regional Product Division. 


Job Estimates and Green Infrastructure Spending 

Estimating the number of jobs dependent upon green infrastructure activities presents a greater 
challenge than estimates related to infrastructure projects as traditionally defined. The basis for 
most data collection by U.S. statistical agencies is the North American Industry Classification 
System (NAJCS). It currently does not identify separately so-called green industries (e.g., those 
that utilize renewable resources to produce their outputs, those that manufacture goods which 
minimize energy use). For example, the NAICS disaggregates the electric utility industry into 
hydroelectric, fossil fuel, nuclear, and other power generation, transmission, and distribution. 

Such renewable sources of energy production as wind, solar, and biomass are not uniquely 
recognized; they are included in the ‘‘other” category. If harnessing the wind to produce 
electricity and plant material to produce biofuel requires a substantially different mix of inputs 
than relying on coal and gasoline, for example, the conventional 1-0 model does not seem well- 
suited as a basis for estimating the number of jobs supported by these green activities. Similarly, 
within NAICS, the construction industry does not have a unique category for retrofitting (e.g., 
installing additional insulation, fluorescent lighting, or energy-efficient heating and air- 
conditioning systems). Retrofitting likely requires a combination of inputs from supplier 
industries that differs from the mix for the top-lo-bottom construction of buildings, once again 
making use of convent ional 1-0 models problematic. 

This recognized difficulty generally is either not mentioned, or how it is dealt with is not 
described, in the analyses of green job creation. One study, commissioned by the Center for 
American Progress that is discussed in more detail below, does address the problem. The 
researchers explain that because “the U.S. government surveys and accounts that are used to 
construct the input-output tables do not specifically recognize wind, solar, biomass, building 
retrofitting, or new mass transit as industries in their own right,” they created synthetic industries 
by combining parts of industries for which data are available. The researchers provided an 
example in the case of the biomass “industry;” they constructed it by combining farming, forestry, 


Congressional Research Service 


10 



113 


job Loss and Infrastructure Job Creation Spending During the Recession 


wood products, and refining industries; then they “assigned relative weights to each of these 
industries in terms of their contributions to producing biomass products,” 14 

Further complicating the matter is the context and manner in which estimates of green jobs 
generally are presented. Studies often develop employment projections based on differing sets of 
assumptions and time horizons. For examp le, the number of direct and indirect jobs some 10 or 
more years in the future supported by an assumed increase in the demand for energy that is met 
by an assumed shift during the projection period from coal to wind and geothermal power 
generation. Some reports also include induced employment, but this is not always made clear. In 
addition, some analyses relate to a particular state. Their results may not be genera tizeable to 
other areas because state economy’s have different mixes of industries and may not be able to 
provide any or all of the inputs for a particular green output. Additionally, the assumptions and 
methodologies underlying the job creation estimates often are not clearly articulated, which 
makes thoughtful review of the results very difficult. 

It should be noted that many of the studies by green economy proponents that were available 
when Congress was crafting stimulus legislation had not been conceived for the purpose of 
quickly stabilizing or increasing the number of jobs in the nation or in industries particularly hard 
hit by the recession. Job creation estimates from two organizations that proposed broad-based 
green economy strategies intended in part to stimulate the deteriorating labor market are briefly 
described below. 

• The September 2008 report. Green Recovery: A Program to Create Jobs and 
Start Building a Low-Carbon Economy, was commissioned by the Center for 
American Progress (a research and educational institute). It represents an 
acceleration of a 10-year program included in a 2007 report ( Capturing the 
Energy Opportunity: Creating a Low-Carbon Economy ). The 2008 report’s 
authors at the Department of Economics and Political Economy Research 
Institute (University of Massachusetts - Amherst), who relied on 1-0 analysis, 
estimate that almost 2 million jobs (935,200 direct jobs, 586,000 indirect jobs, 
and 496,000 induced jobs) could be created or preserved by a two-year SI 00 
billion “green economic recovery program.” Of the SI 00 billion total. S46 billion 
would be in the form of federal spending for such activities as public building 
retrofits, mass transit and freight rail expansion, and smart electrical grid 
development. Much of the remainder would be in the form of tax credits to 
encourage businesses and homeowners to retrofit commercial and residential 
buildings. The authors acknowledge that not all of the green activities 

can contribute equally to a short-term green economic recovery program. Some ... strategies 
are dearly capable of delivering within a year, while others will require as long as two years 
to be implemented.' 5 

• In December 2008. the Apollo Alliance (a coalition of labor, environmental, 
business and community leaders) proposed The Apollo Economic Recovery Act. 


H Robert Poliin, Heidi Garrett-Pelticr, and James Heintz, et ai.. Green Recovery: A Program to Create Good Jobs and 
Stan Building a Low-Carbon Economy, Center for American Progress, Washington, D.C., September 2008, p. 20. 
Iittp://www.ameri canprogress.org. 

15 Robert Poliin, Heidi Garrett-Peltier, and James Heintz, et at.. Green Recovery: A Program to Create Good Jobs and 
Start Building a Low-Carbon Economy, Center for American Progress, Washington, D C, September 2008, p. 5, 
http://www.aniericanprogress.org. 


Congressional Research Service 


11 



114 


Job Loss and Infrastructure Job Creation Spending During the Recession 


It is an initial step toward achievement of a 10-year S500 billion program to 
create 5 million green-collar jobs, which had been released in September 2008. 

The new initiative calls for federal spending of about S50 billion to create or 
maintain more than 650,000 direct jobs and 1.3 million indirect jobs. The 
derivation of these job creation figures is not always clear, appearing to rely 
much of the time on spending-to-jobs relationships estimated by other 
organizations. The proposed allocation of federal funds and associated job 
estimates include S10 billion to improve the efficiency and reliability of the 
electric transmission grid (131,000 direct and indirect jobs), $8 billion to repair 
roads and bridges (278,000 direct and indirect jobs), and S8 billion to encourage 
localities to replace aging buses and trains with U.S.-made clean-energy vehicles 
(37,600 direct jobs in vehicle manufacturing and 167,000 indirect jobs). 

Measuring Jobs Supported by Spending Provisions 
in the American Recovery and Reinvestment Act 

While crafting the American Recovery and Reinvestment Act (ARRA), Congress was concerned 
about timely tracking of the number of jobs whose creation or maintenance results from the 
legislation. The 1 1 1 Congress therefore addressed this matter in bill language much more than 
prior Congresses had in countercyclical job creation legislation. At Title XV — Accountability and 
Transparency of Division A — Appropriations Provisions, P.L. 111-5 requires entities that receive 
ARRA appropriations from federal agencies (e.g„ grant, loan, or contract recipients; states) to 
include in their quarterly reports to the agencies estimates of the number of direct jobs created 
and retained by infrastructure projects, for example. Recipients of recovery funds must make their 
first submission of the required information in October 2009, and the agencies must post the 
contents of the reports on websites 30 days after the end of each calendar quarter. The Office of 
Management and Budget (OMB) is directed to provide guidance to help recipients prepare the 
reports, including the development of job estimates. 16 The act further charges the Congressional 
Budget Office and the Government Accountability Office with commenting on the job estimates 
contained in the reports within 45 days after they have been submitted to federal agencies. 

P.L. 1 1 1-5 additionally tasks the Council on Economic Advisers (CEA) with submitting quarterly 
reports to the Committees on Appropriations on the effect of ARRA-provisions on employment 
and other economic indicators. The CEA's mandate thus extends well beyond the above-described 
reporting requirements, which apply only to $271 billion in direct government investment 
spending out of a total of $787 billion. 17 Accordingly, as well as utilizing the direct job estimates 
provided by recipients of investment spending under ARRA. the CEA anticipates incorporating 
into its macroeconomic model the data the Treasury and the OMB are collecting weekly on tax 
cuts and other spending. 


1,5 Office of Management and Budget. Implementing Guidance for the Reports on Use of Funds Pursuant to the 
American Recovery and Reinvestment Act qf 2009, M-09-21, Washington, D.C., June 22, 2009. 

1 The remaining ARRA funds fall into five categories, as the Council of Economic Advisors states in Estimates of Job 
Creation from the American Recovery and Reinvestment Act of 2009 (May 2009, p. 2): “individual income tax cuts; a 
two-year patch to the alternative minimum tax; Investment incentives; aid to people directly hurt by the recession; and 
state fiscal relief.” 


Congressional Research Service 


12 



115 


Job loss and Infrasbucture Job Creation Spalding During the Recession 


The first quarterly report of the CEA was issued in September 2009. Based on two different 
estimating procedures, it found that ARR A might have added some one million jobs to employer 
payrolls in August 2009 compared to what employment would have been in the absence of the 
legislation. The CEA focused on the impact of the state fiscal relief contained in ARRA because 
S3 8.4 billion had been provided to the states by August, which “represents almost half of outlays 
and one-quarter of total ARRA stimulus (that is, outlays plus tax reductions).” 1 * A positive 
relationship was estimated between the fiscal relief thus far provided to states and employment in 
state and local government as well as in the education and health care industries. 


Author Contact Information 


Linda Levine 

Specialist in Labor Economics 
llevine@crsJoc.gov, 7-7756 


ls Council of Economic Advisers, The Economic impact of the American Recovery and Reinvestment Act of 2009, First 
Quarterly Report, Washington, DC, September 10, 2009, p. 33. 


Congressional Research Service 


13 



116 



Economic Stimulus: Issues and Policies 

Jane G. Gravelle 

Senior Specialist in Economic Policy 

Thomas L. Hungerford 

Specialist in Public Finance 

Marc Labonte 

Specialist in Macroeconomic Policy 
October 6, 2009 


CRS Report for Congress 

Prepared for Members and Committees of Congress 


Congressional Research Service 

7-5700 

wvw.crs.gov 

R40I04 




117 


Economic Stimulus: Issues and Policies 


Summary 

Recent policies have sought to contain damages spilling over from housing and financial markets 
to the broader economy, including monetary policy, which is the responsibility of the Federal 
Reserve, and fiscal policy, includinga tax cut in February 2008 ofS150 billion and two 
extensions of unemployment compensation in June and November of 2008. 

In 2008 and early 2009, the government intervened in specific financial markets, including 
financial assistance to troubled Firms and legislation granting authority to the Treasury 
Department to purchase S700 billion in assets. The broad intervention into the financial markets 
has been passed to avoid the spread of financial instability into the broader market but there are 
disadvantages, including leaving the government holding large amounts of mortgage debt. 

With the worsening performance of the economy beginning in September 2008, Congress passed 
and President Obama signed a much larger stimulus package composed of spending and tax cuts. 
The American Recovery and Reinvestment Act of 2009 (ARRA, RL. 11 1-5), a S787 billion 
package with $286 billion in tax cuts and the remainder in spending, was signed into law on 
February 17, 2009. It includes spending for infrastructure, unemployment benefits, and food 
stamps, revenue sharing with the states, middle class tax cuts, and business tax cuts. 

The need for additional fiscal stimulus depends on the state of the economy. The National Bureau 
of Economic Research (NBER), in December 2008, declared the economy in recession since 
December 2007. Growth rates, after two strong quarters, were 2.1% in the fourth quarter of 2007, 
slightly negative in the first quarter of 2008, positive in the second quarter, a negative 2.7% in the 
third quarter, and a negative 5.4% in the fourth quarter. Estimates put growth at a negative 6.4% 
for the first quarter of 2009, the worst since 1982; estimates indicate negative growth of 0.7% in 
the second quarter of 2009. According to one data series, employment fell in every month of 
2008. The unemployment rate, which rose slightly in the last half of 2007, declined in January 
and February of 2008, but began rising in March 2008 and in September 2009 stood at 9.8%. 
Some forecasters believe that the ongoing financial turmoil will result in a recession that is deeper 
and longer than average. 

Fiscal policy temporarily stimulates the economy through an increase in the budget deficit, which 
leads to an increase in total spending in the economy, either through direct spending by the 
government or spending by the recipients of tax cuts or government transfers. There is a 
consensus that certain proposals — ones that result in more spending, can be implemented quickly, 
and leave no long-term effect on the budget deficit — would increase the benefits and reduce the 
costs of fiscal stimulus relative to other proposals. Economists generally agree that spending 
proposals are somewhat more stimulative than tax cuts because part of a tax cut may be saved by 
the recipients. The most important determinant of the effect on the economy is the stimulus' size. 
The 2008 stimulus package increased the deficit by about 1% of GDP. The ARRA would increase 
the budget deficit by about 1.3% in 2009 and an additional 2.2% (or 3.5% overall) in 2010. The 
Congressional Budget Office (CBO) projects that the ARRA would raise GDP by a range of 1 .4% 
to 3.8% in 2009 compared with what it otherwise would have been. 


Congressional Research Service 



118 


Economic Stimulus: Issues anti Policies 


Contents 

Introduction 

The Current State of the Economy 

The 2009 Stimulus Package 

Preliminary Discussions 

House Proposal 

Senate Proposal 

The American Recovery and Reinvestment Act of 2009 

Discussion 

Issues Surrounding Fiscal Stimulus 

The Magnitude of a Stimulus 

Bang for the Buck 

Timeliness 

Long-Term Effects 

Should Stimulus be Targeted? 

Is Additional Fiscal Stimulus Needed? 

Policies Previously Adopted 

Interventions for Financial Firms and Markets 


..1 

..2 

..4 

..4 

..5 

..7 

..8 

..9 

11 

11 

II 

14 

16 

16 

17 

18 
19 


Tables 

Table I. Zandi’s Estimates of the Multiplier Effect for Various Policy Proposals 14 

Table 2. Timing of Past Recessions and Stimulus Legislation 15 


Contacts 

Author Contact Information 2.1 


Congressional Research Service 



119 


Econotnic Stimulus: Issues and Policies 


Introduction 

The National Bureau of Economic Research (NBER) has declared the U.S. economy to be in 
recession since December of 2007. With the worsening performance of the economy, 
congressional leaders and President Obama proposed much larger stimulus packages. The 
American Recovery and Reinvestment Act of 2009 (ARRA), an $820 billion package with $275 
billion in tax cuts (offset by a $7 billion gain from the treatment of built in losses) and the 
remainder in spending, was passed by the House on January 28 (H.R. 1). It contained 
infrastructure spending, revenue sharing with the states, middle class tax cuts, business tax cuts, 
unemployment benefits, and food stamps. Similar legislation was passed in the Senate on 
February 10 (a substitute for H.R. 1) and would cost S838 billion, with S292 billion in tax cuts. 
The version of the bill signed into law on February 17, 2009 (P.L. 111-5), was a $787 billion 
package with $286 billion in tax cuts and the remainder in spending. 

Numerous actions have already been taken to contain damages spilling over from housing and 
financial markets to the broader economy. These policies include traditional monetary and fiscal 
policy, as well as federal interventions into the financial sector. In February 2008, in response to 
weaker economic growth, an economic stimulus package of approximately .$150 billion was 
adopted. 1 A provision that was considered (but not enacted) in the February stimulus bill was a 
26-week extension of unemployment benefits; this extension was eventually enacted/ 

A number of financial interventions have also been undertaken, before and after financial market 
conditions worsened significantly in September 2008. The Federal Reserve (Fed) has reduced 
short-term interest rates to zero and introduced a number of facilities, providing direct assistance 
to the financial system that would eventually surpass SI trillion. In October 2008, legislation 
granting the Treasury Department authority to purchase up to $700 billion in assets through the 
Troubled Assets Relief Program (TARP) was adopted.’ 1 On March 18, 2009, die Federal Reserve 
announced plans to purchase more than SI trillion in assets, including $750 billion in mortgage- 
backed securities and S300 billion in long-term Treasury debt. On March 23, 2009, the Treasury 
announced a plan for a public-private partnership to purchase troubled assets, including one part 
that uses the Federal Deposit Insurance Corporation (FD1C) to insure loans and another part that 
would allow access to the Federal Reserve’s Term Asset-Backed Securities Loan Facility 
(TALF). 4 


1 A second stimulus plan (H.R. 71 10) passed the House on September 26, but was not passed by the Senate. It included 
$36.9 billion on infrastructure ($12.8 billion highway and bridge. $7.5 billion water and sewer, $5 billion Corps of 
Engineers); $6.5 billion in extended unemployment compensation; $14.5 billion in Medicaid; and $2.7 billion in food 
stamp and nutrition programs. 

2 For a discussion of the tax, housing, and unemployment legislation adopted in the 1 10* Congress, see CRS Report 
RS22850. Tax Provisions of the 2008 Economic Stimulus Package , coordinated by Jane G. Gravelle; CRS Repoti 
RS221 72, The Conforming Loan Limit , by N. Eric Weiss and Mark Jickling; and CRS Report RS22915, Temporary 
Extension of Unemployment Benefits: Emergency Unemployment Compensation (ELI COS), by Julie M. Whittaker and 
Alison M. Shelton. 

y See CRS Report RL34427, Financial Turmoil : Federal Reserve Policy Responses , by Marc Labonte, for a discussion 
of Federal Reserve Policy and CRS Report RL34730. Troubled Asset Relief Program: Legislation and Treasury 
Implementation, by Baird Webel and Edward V. Murphy. 

4 For further discussion see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury 
Implementation, by Baird Webel and Edward V. Murphy. 


Congressional Research Service 


3 



120 


Economic Stimulus: Issues and Policies 


This report first discusses the current state of the economy, including measures that have already 
been taken by the monetary authorities. The next section reviews the economic stimulus package. 
The following section assesses the need for, magnitude of, design of, and potential consequences 
of fiscal stimulus. The final section of the report discusses recent and proposed financial 
interventions. 

The Current State of the Economy 5 

The need for fiscal stimulus depends, by definition, on the state of the economy. According to the 
NBER. the official arbiter of the business cycle, the economy has been in recession since 
December 2007, It defines a recession as a “significant decline in economic activity spread across 
the economy, lasting more than a few months" based on a number of economic indicators, with an 
emphasis on trends in employment and income/’ 

Economic growth rose by 2. 1 % in the fourth quarter of 2007 and then fell by 0.7% in the first 
quarter of 2008; it increased by 1.5% in the second quarter of 2008. Real GDP decreased by 2.7% 
in the third quarter of 2008 and by 5.4% in the fourth quarter. Estimates indicate that output fell 
by 6.4% in the first quarter of 2009, the worst since 1982, and by 0.7% in the second quarter. The 
latest consensus forecast predicts that GDP will contract until the second half of 2009, with 
output falling by 2.6% for 2009 with the annual unemployment reaching a 9.2% in 2009 and 
9.8% in 20 10. 7 This recession is the longest and deepest in the period since the Great Depression, 
although it is still expected to end in 2009. 

According to one data series, employment fell in every month of 2008. The deepening of the 
downturn following September can also be seen in the movement of the unemployment rate. The 
unemployment rate, which was 4.8% in February 2008. rose to 6. 1% in August and September, 
and has steadily risen since, reaching 9.7% in June 2009; it declined slightly to 9.4% in July 2009 
and rose to 9.8% in September 2009. 

After a long and unprecedented housing boom, house prices fell 12% from peak to trough/ and 
residential investment has fallen by more than half. This marked possibly the first year of falling 
house prices since the Great Depression, according to one organization that compiles the data/ 
The decline in residential investment has acted as a drag on overall GDP growth, whereas the 
other components of GDP grew at more healthy rales until the third quarter of 2008. Many 
economists argued that the housing boom was not fully caused by improvements in economic 
fundamentals (such as rising incomes and lower mortgage rates), and instead represented a 
housing bubble — a situation where prices were being pushed up by “irrational exuberance.” 10 


' This section was prepared by Marc Labonte of the Government and Finance Division. 
h National Bureau of Economic Research, I'he NBER V Recession Dating Procedure . January 7. 2008. 

7 Blue Chip, Economic Indicators, vol. 34, no. 9, September 10, 2009. 

7 Based on the Federal Mousing Finance Administration’s Purchase-Only House Price index, a national measure of 
single-family houses with conforming mortgages based on resale data. 

’’ Michael Grynbaum, “Home Prices Sank in 2007, and Buyers Hid," New York Times. January 25, 2008. Prices are 
compiled by the National Association of Realtors. 

01 For more information, see CRS Report RL34244, Would a Housing Crash Cause a Recession?, by Marc Labonte. 


Congressional Research Service 


2 



121 


Economic Stimulus: Issues and Policies 


Most economists believed that a housing downturn alone would not be enough to singlehandedly 
cause a recession, 1 ' But in August 2007, the housing downturn spilled over to widespread 
financial turmoil. 1 ’ Triggered by a dramatic decline in the price of subprime mortgage-backed 
securities and collateralized debt obligations, large losses and a decline in liquidity spread 
throughout the financial system. Although the real production of goods and services showed 
unexpected resilience until the fourth quarter of 2008, die ability of private borrowers to access 
credit markets remained restricted throughout the year. Evidence of a credit crunch was seen in 
the persistence of wide spreads between the interest rates that private borrowers paid for credit 
and the yields on Treasury securities of comparable maturity. 

The Fed was forced to create unusually large amounts of liquidity to keep short-term interest rates 
from rising in August 2007, and has since reduced interest rates significantly. The Fed has 
gradually reduced the federal funds target rate from 5.25% to a range of 0 to 0.25%, as of 
December 16, 2008. In addition, the Fed has lent directly to financial institutions through an array 
of new' facilities, and the amounts of loans outstanding has at times exceeded a trillion dollars. 1 ’ A 
reduction in lending by financial institutions in response to uncertainty or financial losses is 
another channel through which the economy entered a recession. 

To date, financial markets remain volatile, new losses have been announced at major financial 
institutions, and responses outside traditional monetary policy have been undertaken. Last March, 
the financial firm Bear Stearns encountered liquidity problems, was purchased, after a plummet in 
stock value, by JPMorgan Chase with financial assistance from the Fed. Then in July, the 
government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac experienced rapidly 
falling equity prices in response to concerns about the value of their mortgage-backed securities 
assets. In July, Congress authorized Treasury to extend the GSEs an unlimited credit line (which 
has not been utilized to date) in the Housing and Economic Recovery Act of 2008 (P.L. 110-289) 
because of concern that the failure of a GSF. would cause a systemic financial crisis. The federal 
government took control of Fannie Mae and Freddie Mac in early September. 

According to news reports in the fall of 2008, government officials decided not to intervene on 
behalf of Lehman Brothers and Merrill Lynch; 1 4 on September 14, Bank of America took over 
Merrill Lynch without federal intervention, and on September 15, Lehman Brothers filed for 
bankruptcy. The Treasury and Federal Reserve were trying to engineer a private bailout of the 
nation's largest insurance company, AIG, but on September 16 seized control with an $85 billion 
emergency loan, which would later be increased. 15 

On September 1 8, Administration and Federal Reserve officials, with the bipartisan support of the 
congressional leadership, announced a massive intervention in the financial markets. 16 The 


1 1 See, for example, Frederic Mishkin, ‘'Housing and rhe Monetary Transmission Mechanism,” working paper 
presented at the Federal Reserve Bank of Kansas City symposium, August 2007. 

See CRS Report RL34! 82, Financial Crisis? The Liquidity Crunch of August 2007. by Darryl E. Getter el al. 

1 See CRS Report RL34427, Financial Turmoil: Federal Reserve Policy Responses, by Marc Labonte. 

14 David Cho and Neil Irwin. “No Bailout; Feds Made New Policy Clear in One Intense Weekend,” Washington Post, 
September 16. 2008, pp. Al, A6-A7. 

15 Glenn Kessler and David S. Hilzenrath, "AIG at Risk; $700 Billion in Shareholder Value Vanishes,” Washington 
Post, September 1 6, 2008; US. Seizes Control of AIG With S85 Billion Emergency Loan. Washington Post, 
September 1 7. 2008. pp. A! , A8. 

16 See CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury Implementation, by Baird 
Webel and Edward V. Murphy. 


Congressional Research Service 


3 



122 


Economic Stimulus: Issues and Policies 


proposal asked for authority to purchase up to $700 billion in assets over the next two years. The 
Treasury had also provided insurance for money market funds, where withdrawals have been 
significant. These proposals suggested that government economists see problems with the 
transmission of traditional monetary stimulus into the financial sector and ultimately into the 
broader economy, where a significant contraction of credit could significantly reduce aggregate 
demand. Although the legislation passed with some delay, the stock market fell significantly. The 
original proposal had discussed buying mortgage related assets, particularly mortgage-backed 
securities, but the Treasury indicated it will spend the initial $250 billion on preferred stock in 
financial institutions. The Fed has also announced purchases of commercial paper, $200 billion of 
asset-backed securities, and $600 billion of mortgage-related securities: the government has also 
announced a plan to guarantee certain assets of Citigroup and Bank of America. On March 1 8. the 
Fed announced plans to purchase more than $ 1 trillion in assets, including $750 billion in 
mortgage-backed securities and S300 billion in long-term Treasury debt. On March 23, 2009, the 
Treasury announced a plan for a public-private partnership to purchase troubled assets, including 
one part that uses the Federal Deposit Insurance Corporation (FD1C) to insure loans and another 
part that would allow access to the Federal Reserve’s Term Asset-Backed Securities Loan Facility 
(TALK). 17 

As the economy and financial sector had been grappling with the housing downturn, energy 
prices had risen significantly, from $48 per barrel in January 2007 to S 1 1 5 dollars on April 30, 
2008, and $ 1 44 as of July 2, 2008. After that, oil prices began a downward trend, and had fallen 
below $70 by October and $60 by the end of November. The price reached $43 per barrel on 
December 10, but has since increased to about S70 per barrel. Most recessions since World War 
11, including the most recent, have been preceded by an increase in energy prices. 18 Energy prices 
had gone up almost continuously in the current expansion, however, without causing a recession, 
which may point to the relative decline in importance of energy consumption to production. 
Although a housing downturn, financial turmoil, or an energy shock might not be enough to cause 
a recession in isolation, the combination was sufficient. 


The 2009 Stimulus Package 19 


Preliminary Discussions 

On December 15, House Speaker Peiosi suggested a $600 billion package with $400 billion of 
spending and $200 billion in tax cuts as a starting point for discussion. It was reported that the 
package would include infrastructure spending, aid to the states, unemployment compensation, 
and food stamps. Earlier, on December 11, Finance Committee Chairman Baucus suggested that 
half of an expected S700 billion plan might be in tax cuts; he mentioned child tax credits, state 
and local property tax deductions, the R&D tax credit, the marriage penalty, tax exempt bonds 
and energy incentives. House Republican Leader Boehner proposed a tax package that included 
increases in the child tax credit, suspending the capital gains tax on newly acquired assets, 


*' For further discussion, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury 
Implementation , by Baird Webel and Edward V. Murphy. 

18 For more information, see CRS Report RL3 1608, The Effects of Oil Shocks on the Economy: A Review of the 
Empirical Evidence , by Marc Labonte. 

1 ' ) This section was prepared by Jane Gravelle and Thomas Hungerford, Government and Finance Division. 


Congressional Research Service 


4 



123 


Economic Stimulus: Issues and Policies 


increasing expensing, extending bonus depreciation and raising the share of costs expensed from 
50% to 75%, extending net operating loss carrybacks to three years, lowering the corporate tax 
rate from 35% to 25%, and expanding energy subsidies. 

Reports on December 29 suggested that President-elect Obama would propose a package of $670 
billion to $770 billion, but that additions in Congress might raise the total to $850 billion. The 
package was reported to include $100 billion in aid to the states to fund Medicaid, possibly with 
additional grants, and at least S350 billion for public works, alternative energy, health care and 
school modernization, and expanding unemployment insurance and food stamp benefits. The 
package would also include middle class tax cuts, possibly including changes to the child credit, 
state and local property taxes, marriage penalties, the R&D tax credit and tax exempt bonds. 

Following a meeting between President-elect Obama and congressional leaders on January 5, 
news reports indicated that the share of the package directed at tax cuts would increase to about 
40%, perhaps S300 billion. President-elect Obama suggested a credit for working families of up 
to $ 1 ,000 for couples and $500 for singles. Business provisions that were discussed included 
extensions of the bonus depreciation and small business expensing enacted in February 2008 that 
expired at the end of 2008 as well as an extended net operating loss carryback provision that was 
discussed but not enacted in 2008. Also discussed was an expansion of the first-time homebuyers 
credit adopted in the 2008 housing legislation and expanding renewable energy incentives. A 
payroll tax holiday was also discussed. 

News reports on January 9 indicated some resistance of congressional lawmakers to two 
provisions in President-elect Obama’s plan: a S3, 000 tax credit for employers who hire new 
workers and the working families credit which provides for a credit of 6.2% of earnings up to a 
ceiling of S500 for individuals and $1,000 for married couples. Some were concerned that the 
employer tax credit would not benefit distressed firms and will be difficult to administer. There 
were also concerns about the effects of a tax benefit of small magnitude having an effect if 
reflected in withholding, although many economists suggest that a larger fraction of income 
received in small increments is spent. 


House Proposal 

The House proposal of the American Recovery and Reinvestment Act (H.R. 1) was composed of 
both spending and tax cuts. The spending proposals, which total $518.7 billion, include the 
following: 

• $54 billion for energy efficiency ($32 billion to improve the energy grid and 
encourage renewable energy, $16 billion to repair and retrofit public housing; S6 
billion to weatherize modest income homes); 

• $ 1 6 billion for science and technology ($ 1 0 billion for research, $6 billion to 
expand broadband access in rural and underserved areas); 

• $90 billion for infrastructure ($30 billion for highways, $3 1 billion for public 
infrastructure that leads to energy cost savings, $19 billion for clean water, flood 
control and environmental infrastructure, $ 1 0 billion for transit and rail); 

• S 141.6 billion for education ($41 billion to local school districts dedicated to 
specific purposes, $79 billion to prevent cutbacks in state and local services 
including $39 billion to local school districts and public colleges and universities 


Congressional Research Service 



124 


Economic Stimulus: Issues and Policies 


distributed through existing formulas, S 1 5 billion to states for meeting 
performance measures, $25 billion to states for other needs, $15.6 billion to 
increase the Pell grant by $500, $6 billion for higher education modernization); 

• $24. 1 billion for health ($20 billion in health information technology and $4. 1 
billion for preventive care); 

• $ 1 02 billion for transfer payments ($43 billion for unemployment benefits and 
job transit benefits, $39 billion to cover health care for unemployed workers, $20 
billion for food stamps); and 

• $9 1 billion to the States ($87 billion in general revenues by temporarily 
increasing the Medicaid matching rate and $4 billion for law enforcement). 

The proposal also contained $275 billion in tax cuts, which was reduced by a small revenue gain 
from limits on built-in losses. The tax elements included the following: 

• Temporary income tax cuts for individuals included the Making Work Pay tax 
credit — a 6.2% credit for earnings with a maximum of $500 for singles and 
$1,000 for couples, phased out for taxpayers with incomes over $75,000 
($150,000 for joint returns) — with a SI 45.3 billion 10-year cost, $4.7 billion for a 
temporary increase in the earned income credit, $ 1 8.3 billion to make the child 
credit fully refundable, SI 3.7 billion to expand higher education tax credits and 
make them 40% refundable (the refundability feature accounts for $3.5 billion). 

• Tax provisions for business, which would have lost revenue in FY2009-FY2010 
and gain revenue thereafter, included $37.8 billion for extending bonus 
depreciation, S59. 1 billion for a temporary five year loss carryback for 2008 and 
2009 (except for recipients of TARP funds; and electing firms would reduce 
losses by 10%), and S 1.1 billion for extending small business expensing. 

• A series of provisions related to tax exempt bonds aimed at aiding state and local 
governments, which would have cost S 1 .3 billion for FY2009-FY2010, but $37.3 
billion from FY2009-FY2019. Almost half the revenue loss would have arisen 
from allowing taxable bond options which to make bonds attractive to tax exempt 
investors. Other major provisions measured by dollar cost were qualified school 
construction bonds, recovery zone bonds, and provisions to allow financial 
institutes more freedom to buy tax exempt bonds. 

• A permanent provision would have repealed the 3% withholding for government 
contractors, which would not have lost revenue until 201 1 and would have cost 

$ 10.9 billion for FY2009-FY2019. 

• Energy provisions, some permanent and some temporary, would have totaled 
$5.4 billion in FY2009-FY201 1 and $20.0 billion in FY2009-FY20 1 9. There was 
also a provision substituting grants for credits for certain energy projects which 
would have shifted benefits to the present. 

• The proposal also included a provision to eliminate the requirement for paying 
back credit for first-time homebuyers unless they sell their homes within three 
years (S2.5 billion for 2009-2019). There was also a substitution of grants for the 
low income housing credit, which would have shifted benefits to the current year 
($3 billion). 


Congressional Research Service 


6 



125 


Economic Stimulus: Issues and Policies 


• A minor provision (S208 million for FY2009-2019) would have provided 
incentives for hiring unemployed veterans and disconnected youth. 

• Repeal (prospectively) a Treasury ruling made in 2008 that allowed financial 
institutions to carry over losses in an acquisition (gains $7 billion for FY2009- 
FY2010). 

The bill passed the House on January 28, with an additional of S3. 7 billion, primarily for transit 
funds, bringing the total cost to $820 billion. 


Senate Proposal 

The Senate passed a bill (a substitute for H.R. I ) with $838 billion in spending and tax cuts. The 
higher cost was primarily due to the addition of the Alternative Minimum Tax (AMT) “patch” 

(see below). 

The tax provisions were similar to the House tax bill in many respects. The bill, however, did not 
fully refund the child credit and made 30% of tuition credits refundable, but allowed an exclusion 
of up to $2,400 of unemployment benefits. The Senate bill also included a SI 5,000 
homeownership tax credit at a 1 ()-year cost of $35 billion and an above-the-deduction for certain 
costs of a new automobile purchase (SI 1 billion 10-year cost). It would not have required net 
operating losses to be reduced, as in the House bill. It added provisions for businesses including 
an election to accelerate alternative minimum tax and research and experimentation credits in lieu 
of bonus depreciation, a deferral of tax on income from cancellation of indebtedness, an increase 
in the exclusion for small business stock. It also altered the size and mix of tax exempt bond 
provisions, with the total cost of S22.6 billion, and changed some energy provisions. The bill also 
included a $300 per adult payment to individuals eligible for Social Security, Railroad 
Retirement, Veterans benefits, and Supplemental Security Income, at a cost of S17 billion, and 
provided a one year increase in the ATM “patch” exemption, at a cost of $70 billion. Overall, the 
tax cuts were $368.4 billion. The measure also included $87 billion in Medicaid funding for the 
states, $20 billion to provide health insurance for unemployed workers, and $16 billion to provide 
for health information technology. 

The details of the spending provisions amounted to S290 billion in discretionary spending and 
S260 billion in direct spending," 0 One category of provisions would have provided $116 billion 
for infrastructure and science, including $5.9 billion for the Department of Homeland Security 
and border stations, $7 billion for broadband technology, provisions in infrastructure and science 
for a variety of federal programs (e.g., $4.6 billion for the corps of engineers, $9.3 billion for 
defense and veterans), $27 billion for highways, S8.4 billion for mass transit, $10.9 billion for 
grants and other transportation, $8.6 billion for public housing, $15 billion for environmental 
programs, and $4.3 billion for science. The bill wmuld have provided $84 billion for education 
and training, with the majority, $79 billion, in grants to states and localities, and also included $13 
billion in Title 1. and $3.9 billion in Pell grants. Energy programs accounted for S43 billion; $23 
billion would have been provided for nutrition, early childhood, and similar programs; and $14 
billion for health. The Senate bill also contained a limit on executive compensation at firms 
receiving assistance from TARP. 


The direct spending also includes SS3.7 billion in the refundable portion of tax credits. 


Congressional Research Service 


7 



126 


Economic Stimulus: Issues and Policies 


The American Recovery and Reinvestment Act of 2009 

The American Recovery and Reinvestment Act of 2009 (P.L. 111-5) was signed by President 
Obama on February 17, 2009. The version of the act signed into law has several provisions 
similar to the House and Senate proposals. The total 10-year cost, at $787 billion, is lower than 
both versions initially passed by the House and Senate, however. The spending parts of the act 
account for 63,7% of the total cost ($501 .6 billion) and the tax provisions account for 36.3% 
($285.6 billion). The act includes the S70 billion AMT “patch" and an executive compensation 
limitation for TARP recipients. 

Many of the tax and spending provisions of the act were scaled down from the House and Senate 
proposals. The Making Work Pay tax credit was scaled back to $ 1 1 6.2 billion between FY2009 
and FY201 1 and provides a tax credit of up to $400 for a single taxpayer and S800 of joint 
taxpayers. The temporary increase in the earned income credit is projected to cost $4.7 billion 
over 10 years and the child tax credit is projected to cost $14.8 billion. The act also includes a 
$8,000 first-time homebuyer credit with a 10-year cost of S6. 6 billion, an above-the-line 
deduction for sales tax on a new automotive purchase (S 1 .7 billion), a $2,400 exclusion of 
unemployment compensation benefits ($4.7 billion), and a $250 payment to recipients of Social 
Security. SSI, Railroad Retirement benefits, and certain veterans benefits ($14.2 billion). 21 

The business tax provisions are projected to lose $75.9 billion in revenues for FY2009 and 
FY20 1 0, but gain revenue in the future; the total 1 0-year revenue loss is projected to be $6.2 
billion. Other business tax provisions include an extension of bonus depreciation ($5.1 billion 
revenue loss), a five-year carryback of net operating losses for small businesses ($0.9 billion), 
delayed recognition of certain cancellation of debt income ($1.6 billion), an increase in the small 
business capital gains exclusion from 50% to 75% (S0.8 billion), and incentives to hire 
unemployed veterans and disconnected youth (SO. 2 billion). 

The energy tax provisions amount to $20 billion over 10 years and $3.4 billion for FY2009- 
FY20 1 1 . The major energy provision is a long-term extension and modification of renewable 
energy production tax credits ($13.1 billion over 10 years). The act alters the size and mix of tax- 
exempt bond provisions with a total 10-year cost of S25 billion. 

The discretionary appropriations provisions of the act provide S3 1 1 billion in appropriations 
between FY2009 and FY2019. Investments in infrastructure and science account for $120 billion 
and education and training programs are to receive $106 billion. Health programs are set to 
receive $14.2 billion, the Supplemental Nutrition Assistance Program (formerly food stamps) will 
receive $20 billion, Head Start $2. 1 billion, and $2 billion for the child care development block 
grant. Almost $40 billion will be used for investments in energy infrastructure and programs. 
Increases for direct spending programs include $57.3 billion for assistance to unemployed 
workers and struggling families, $25.1 billion for health insurance assistance, $20.8 billion for 
health information technology, and $90.0 billion for state fiscal relief. 


“ There is also a $250 tax credit for federal and state pensioners not eligible for Social Security with a $218 million 10- 
year cost. 


Congressional Research Service 


8 



127 


Economic Stimulus: Issues and Policies 


Discussion 

Fiscal stimulus is only effective when the policy options increase aggregate demand. Many 
economists view fiscal policy as less effective than monetary policy in an open economy. As 
mentioned earlier in this report, however, several monetary policy options have already been 
employed for several months. 

Fiscal stimulus can involve tax cuts, spending, or a combination of both. Tax cuts may be less 
effective than spending because some of the tax cut may be saved, which diminishes the 
effectiveness of the stimulus. Some argue that tax cuts that are temporary, that appear in a lump 
sum rather than in withholding, or that are aimed at higher income individuals are more likely to 
be saved. Some evidence suggests that two-thirds of the 2001 tax rebate was spent within two 
quarters. 


The challenge to spending programs is that there may be a lag time for planning and 
administration before the money is spent. For that reason, infrastructure spending is often 
discussed in the context of “ready-to-go” projects where all of the planning is in place and the 
only missing factor is funding. The U.S. Conference of Mayors has identified S73 billion of these 
projects and urged some funds to be given directly to localities; the American Association of State 
Highway and Transportation Officials has identified $64 billion of these projects; the National 
Association of Counties has identified $9.9 billion. Some analysts suggest that aid to state and 
local governments may be more quickly spent because these governments are likely to cut back 
on spending in downturns due to balanced budget requirements, and the aid may forestall these 
cuts. 12 The Congressional Budget Office (CBO) score for the spending (discretionary and direct) 
portion of the act estimates that about 21% will be spent in FY2009, and 38% in FY2010. 1 ' 
Overall, about 74% of the spending and tax provisions are estimated to reach the public by the 
end of FY2010. However, if the AMT “patch” is omitted then about 70% is estimated to reach the 
public by the end of FY20 10. 

The receipt of tax cuts can also be delayed. 24 For example, according to Joint Committee on 
Taxation estimates of the Making Work Pay credit revenue losses, 17% of the total would be 
received in FY2009. 35 The benefit is provided in the form of withholding; since the measure was 
not in place on January 1, some benefit would be delayed until tax returns are filed. Close to 50% 
would be received in FY2009 if a rebate mechanism were used (based on estimates of a similar 
provision considered in 2008 at about the same time of the year, 93% of the rebate was projected 
to be received in the current fiscal year). There is some limited evidence that periodic payments 
are more likely to be spent than lump sum payments, but that evidence is subject to uncertainty 
and is not of a magnitude that the withholding approach would result in a larger short run 
stimulus than a rebate." 6 In the second year, 57% would be received. 


22 See CRS Report R401 07, The Role of Public Works Infrastructure in Economic Stimulus., coordinated by Claudia 
Copeland, and CRS Report 92-939, Countercyclical Job Creation Programs . by Linda Levine. 

2i CBO, Letter to the Honorable Nancy Pelosi, Estimated Budget Impact of the Conference Agreement for H.R. L 
February 13, 2009. 

24 The progress of spending is tracked at http://www.recovery.gov/. 

2r 'http:/7 vvww. house, gov/jet/x- 1 9-09.pdf. 

2t> This issue does not address the difference between temporary and permanent tax cuts; economists expect the latter to 
have more effect on consumption, but a permanent tax cut would result in budget pressures after recovery. Alan S. 
Blinder, "Temporary Income Taxes and Consumer Spending*' The Journal of Political Economy , Vol. 89, February 
(continued...) 


Congressional Research Service 


9 



128 


Economic Stimulus: Issues and Policies 


Several studies have estimated the effects of the proposed package on the economy. Romer and 
EJernstein estimate an increase of 3.7 million jobs by the fourth quarter of 2010; Zandi estimates 
3.3 million in 20 10. 2 ' The Romer-Bemstein estimates were criticized by Cogan et al. as being too 
large. 2 * 5 Citing uncertainty surrounding the effects of fiscal stimulus, CBO projects that the ARRA 
would boost GDP in 2009 by a range of 1.4% to 3.8% and employment by a range of 0.8 million 
to 2.3 million compared with what it otherwise would have been. In 201 0, CBO projects that the 
ARRAwou Id boost GDP by 1.1% to 3.3% and employment by 1.2 million to 3.6 million in 2010 
compared with what it otherwise would have been. Starting in 2014, CBO projects that the ARRA 
would cause GDP to be slightly lower than it otherwise would have been due to “crowding out” 
effects described in the section titled “Long-Term Effects.” The Council of Economic Advisors 
(CEA) is charged with providing a quarterly report on the effects of the legislation; that report 
estimates that the stimulus increased GDP growth by 2-3 percentage points in the second and 
third quarters and increased employment by 600,000 to 1.1 million jobs in the third quarter. 29 


(...continued) 

1981, pp. 26-53, found the rebate 38% as effective as a permanent change and a withholding approach 50%, suggesting 
that the rebate would be 75% as effective as withholding. James M. Poterba, “Are Consumers Forward Looking?” 
American Economic Review , Vol. 78. (May 1 988), pp. 413-418 found only 20% spent. Many economivSts have 
reservations about estimates using aggregate data, however, because of the difficulties of determining the 
counterfactual. For that reason, many researchers turned to comparisons of households with different amounts of tax 
cuts. Two studies of spending out of refunds (lump sum receipts) and spending out of withholding in the first Reagan 
tax cut found that 35% to 60% of refunds were spent but 60% to 90% of the withholding was spent (See Nicholas 
Souleles, “The Response of Household Consumption to Income Tax Refunds,” American Economic Review , vol. 89 
(September 1 999), pp. 947-958; and Nicholas Souleles, “Consumer Response to the Reagan Tax Cuts,” Journal of 
Public Economics. Vol. 85, pp. 99-120.). This research suggests a significant fraction of a temporary tax cut is spent, 
but that the lump sum has an effect that is about two thirds of the effect of withholding. This comparison is, however, 
somewhat clouded by the possibility that individuals may use tax refunds as a method of forced savings and not intend 
to spend them. In both cases, however, there is evidence of an effect for temporary tax cuts. Research on the 2001 
rebate also indicates a significant amount was spent: David S. Johnson. Jonathan A. Parker, and Nicholas S. Souleles, 
Household Expenditures and the Income Tax Rebate of 2001 American Economic Review , Vol. 96, December 2006, 
pp. 1589-1610 find over two thirds spent within two quarters. For other research see CRS Report RS21 126, Tax Cuts 
and Economic Stimulus: How Effective Are the Alternatives ?, by Jane G. Gravelle. Not included in that discussion are 
survey data asking individuals about their spending, as individuals themselves may not know what they spent. A 
preliminary study of the 2008 rebate also found significant spending: Christian Broda and Jonathan Parker, “The 
Impact of the 2008 Tax Rebates on Consumer Spending: Preliminary Evidence,” Mimeo, University of Chicago and 
Northwestern University, July 29,2008: http://online. wsj.com/public/resources/docurnents/VVS.l- 
2008 Sti mul usS tudy.pdf. 

Christina Romer and Jared Bernstein, “The Job impact of the American Recovery and Reinvestment Plan, Chair, 
Nominee Designate Council of Economic Advisors and Office of the Vice President Elect, January 9, 2009, 
http://otrans.3cdn. net/45593e8ecbd339d074_13m6btlte.pdf; Mark Zandi, “The Economic Impact of the American 
Recovery and Reinvestment Act,” January 21, 2009, http://www.economy.com/mark-zandi/documents/ 
Economic_Stimulu.sHouse_PJan_01 2 109.pdf. 

28 John Cogan ct al ,, New Keynesian vs. Old Keynesian Government Spending Multipliers . National Bureau of 
Economic Research, Working Paper 4782, March 2009. 

29 Council of Economic Advisors, The Economic Impact of the American Recovery and Reinvestment Act of 2009, 
September ! 0, 2009, http://www.whitehouse.gov7assets/documents/CEA_ARR A_Repoii_Final.pdf. 


Congressional Research Service 


10 



129 


Economic Stimulus: Issues and Policies 


Issues Surrounding Fiscal Stimulus 30 


The Magnitude of a Stimulus 

The most important determinant of a stimulus’ macroeconomic effect is its size. The 2008 
stimulus package (P.L. 110-185) increased the budget deficit by about 1% of gross domestic 
product (GDP). In a healthy year, GDP grows about 3%. In the moderate recessions that the 
United States experienced in 1990-1991 and 2001, GDP contracted in some quarters by 0.5% to 
3%. (The U.S. economy has not experienced contraction in a full calendar year since 1991.) Thus, 
a swing from expansion to recession would result in a change in GDP growth equal to at least 3.5 
percentage points, A stimulus package of 1% of GDP could be expected to increase total spending 
by about 1%. 31 To the extent that spending begets new spending, there could be a multiplier effect 
that makes the total increase in spending larger than the increase in the deficit. Offsetting the 
multiplier effect, the increase in spending could be neutralized if it results in crowding out of 
investment spending, a larger trade deficit, or higher inflation. The extent to which the increase in 
spending would be offset by these three factors depends on how quickly the economy is growing 
at the time of the stimulus — an increase in the budget deficit would lead to less of an increase in 
spending if the economy were growing faster. 

Thus, if the recession is mild, additional stimulus may not be necessary for the economy to 
revive. If, on the other hand, the economy has entered a deeper, prolonged recession, as some 
economists believe to be likely, then fiscal stimulus may not be powerful enough to avoid it. 

Since the current recession has already lasted longer than the historical average, it may end before 
further fiscal stimulus can be enacted. Economic forecasts are notoriously inaccurate due to the 
highly complex and changing nature of the economy, so there is significant uncertainty as to how 
deep the downturn will be, and how much fiscal stimulus would be an appropriate response. 

The American Recovery and Reinvestment Act of 2009 will increase the budget deficit by about 
1 .3% in 2009 and an additional 2.2% (or 3.5% overall) in 2010. Some believe that circumstances 
warrant a larger stimulus — GDP in FY2009 is expected to contract by more than size of the 
stimulus in 2009, Others have expressed reservations that the deficit is already too large and, at 
least with respect to spending, it would be difficult to spend such large amounts without financing 
wasteful projects. Although the act authorizes $379 billion of spending in 2009, CBO estimates a 
outlays of only SI 20 billion because it does not project that executive agencies can spend the total 
amount authorized in this fiscal year. 


Bang for the Buck 

In terms of first-order effects, any stimulus proposal that is deficit financed would increase total 
spending in the economy.” For second-order effects, different proposals could get modestly more 
'‘bang for the buck" than others if they result in more total spending. If the goal of stimulus is to 


30 This section was prepared by Marc Labonte. Government and Finance Division. 

>! See, for example, "Options for Responding to Short-term Economic Weakness,” Testimony of CBO Director Peter 
Orszag before the Committee on Finance, January 22, 2008. 

• 2 There may be a few proposals that would not increase spending. For example, increasing tax incentives to save 
would probably not increase spending significantly. These examples are arguably exceptions that prove the rule. 


Congressional Research Service 


11 



130 


Economic Stimulus: Issues and Policies 


maximize the boost to total spending while minimizing the increase in the budget deficit (in order 
to minimize the deleterious effects of “crowding out”), then maximum bang for the buck would 
be desirable. The primary way to achieve the most bang for the buck is by choosing policies that 
result in spending, not saving. 33 Direct government spending on goods and services would 
therefore lead to the most bang for the buck since none of it would be saved. The largest 
categories of direct federal spending are national defense, health, infrastructure, public order and 
safety, and natural resources. 34 

Higher government transfer payments, such as extended unemployment compensation benefits or 
increased food stamps, or tax cuts could theoretically be spent or saved by their recipients. ’ 5 
Although there is no way to be certain bow to target a stimulus package toward recipients who 
would spend it, many economists have reasoned that higher income recipients would save more 
than lower income recipients because U.S. saving is highly correlated with income. For example, 
two-thirds of families in the bottom 20% of the income distribution did not save at all in 2004, 
whereas only one-fifth of families in the top 10% of the income distribution did not save. 36 
Presumably, recipients in economic distress, such as those receiving unemployment benefits, 
would be even more likely to spend a transfer or tax cut than a typical family. 

The effectiveness of tax cuts also depends on their nature. As discussed above, tax cuts received 
by lower income individuals are more likely to be spent. Some economists have also argued that 
temporary individual tax cuts, such as the 2001 and 2008 rebates, are more likely to be saved; 
however, evidence on the 2001 tax rebate suggests most was eventually spent, and debate 
continues on the effect of the 2008 rebate. Most evidence does not suggest that business tax cuts 
would provide significant short-term stimulus. Investment incentives arc attractive, if they work, 
because increasing invest ment does not trade off short term stimulus benefits for a reduction in 
capital formation, as do provisions stimulating consumption. Nevertheless, most evidence does 
not suggest these provisions work very well to induce short-term spending. This lack of 
effectiveness may occur because of planning lags or because stimulus is generally provided 
during economic slowdowns when excess capacity may already exist. Of business tax provisions, 
investment subsidies are more effective than rate cuts, but there is little evidence to support much 
stimulus effect. Temporary bonus depreciation is likely to be most effective in stimulating 
investment, more effective than a much costlier permanent investment incentive because it 
encourages the speed-up of investment. Although there is some dispute, most evidence on bonus 
depreciation enacted in 2002 nevertheless suggests that it had little effect in stimulating 
investment and that even if the effects were pronounced, the benefit was too small to have an 
appreciable effect on the economy. The likelihood of the remaining provisions having much of an 
incentive effect is even smaller. Firms may, for example, benefit from the small business 
expensing, but it actually discourages investment in the (expanded) phase out range. ” Net 


” Policies that result in more bang for the buck also result in more crowding out of investment spending, which could 
reduce die long-term size of the economy (unless the policy change increases public investment or induces private 
investment). 

” For the purpose of this discussion, government transfer payments, such as entitlement benefits, are not classified as 
government spending. 

35 Food stamps cannot be directly saved since they can only be used on qualifying purchases, but a recipient could 
theoretically keep their overall consumption constant by increasing their other saving. 
f ' Brian Bucks et al„ ’‘Recent Changes in U.S. Family Finances: Evidence from the 2001 and 2004 Survey of 
Consumer Finances,” Federal Reserve Bulletin, vol. 92, February 2006, pp. A1-A38. 

37 For more information, sec CRS Report RS21 1 36, Government Spending or Tax Reduction: Which Might Add More 
Stimulus to the Economy ?, by Marc Labonte; CRS Report RS2 1 1 26, Tax Cuts and Economic Stimulus : How Effective 
(continued...) 


Congressional Research Service 


12 



131 


Economic Stimulus: Issues and Policies 


operating losses carrybacks do not increase incentives to spend, but do target cash to troubled 
businesses. 

Mark Zandi of Moody’s Ecortomy.com has estimated multiplier effects for several different policy 
options, as shown in Table l.' 18 The multiplier estimates the increase in total spending ill the 
economy that would result from a dollar spent on a given policy option. Zandi does not explain 
how these multipliers were estimated, other than to say that they were calculated using his firm’s 
macroeconomic model. Therefore, it is difficult to offer a thorough analysis of the estimates. In 
general, many of the assumptions that would be needed to calculate these estimates are widely 
disputed (notably, the difference in marginal propensity to consume among different recipients 
and the size of multipliers in general), and no macroeconomic model has a highly successful track 
record predicting economic activity. Thus, the range of values that other economists would assign 
to these estimates is probably large. Qualitatively, most economists would likely agree with the 
general thrust of his estimates, however — spending provisions have higher multipliers because 
tax cuts are partially saved, and some types of tax cuts are more likely to be saved by their 
recipients than others. As discussed above, a noticeable increase in consumption spending has not 
yet accompanied the receipt of the rebates from the first stimulus package. (Note, however, that 
these effects do not account for the possibility of extensive delay in direct spending taking place.) 

The CBO rankings of multipliers are similar to Zatidi’s. 3 ’ For government purchases and transfers 
to state and local governments for infrastructure, their multipliers are 1.0 in the low scenario and 
2.5 in the high. For transfers to state and local governments not for infrastructure, the multipliers 
are 0.7 and 1 .9, CBO sets the multipliers for transfers at 0.8 to 2.2, for temporary individual tax 
cuts at 0.5 to 1 .7, and the tax loss carryback at 0 to 0.4. As with Zandi, these effects do not 
incorporate differentia ls in the rate of spending, however. In particular, they note that 
infrastructure spending will likely be delayed, while transfers would occur very quickly. Unlike 
Zandi, CBO emphasizes the broad uncertainty inherent in estimating multipliers. 


(...continued) 

Are the Alternatives?, by Jane G. Gravelle; CRS Report RL31 134, Using Business Tax Cuts to Stimulate the Economy. 
coordinated by Jane G. Gravelle; and CRS Report RS22790. Tax Cuts for Short-Run Economic Stimulus: Recent 
Experiences , coordinated by Jane G. Gravelle. Also see Fiscal Policy for the Crisis, IMF Stall Position Note, 
December 29, 2008, SPN/08/01 http7/www.imf.org/extema!/np/pp/eng(2008/122308.pdf. 

Mark Zandi, “Washington Throws the Economy a Rope. ' Dismal Scientist , Moody's Economy.com, January 22, 
2008. 

19 Congressional Budget Office, "The State of the Economy and Issues in Developing an Effective Policy Response,” 
Testimony of Douglas W. Elmendorf, Director, House Budget Committee, January 27, 2009. 


Congressional Research Service 


13 



132 


Economic Stimulus: Issues and Policies 


Table I.Zandi’s Estimates of the Multiplier Effect for Various Policy Proposals 


Policy Proposal 

One-year change in real GDP for a 
given policy change per dollar 

Tax Provisions 


Non-refundable rebate 

1.02 

Refundable rebate 

1.26 

Payroll tax holiday 

1.29 

Across the board tax cut 

1.03 

Accelerated depreciation 

0.27 

Extend alternative minimum tax patch 

0.48 

Make income tax cuts expiring in 2010 permanent 

0.29 

Make expiring dividend and capital gains tax cuts permanent 

0.37 

Reduce corporate tax rates 

0.30 

Spending Provisions 


Extend unemployment compensation benefits 

1.64 

Temporary increase in food stamps 

1.73 

Revenue transfers to state governments 

1.36 

Increase infrastructure spending 

1.59 


Source: Mark Zandi, Moody's Economy.com. 


Timeliness 

Timeliness is another criterion by which different stimulus proposals have been evaluated. There 
are lags before a policy change affects spending. As a result, stimulus could be delivered after the 
economy has already entered a recession or a recession has already ended. First, there is a 
legislative process lag that applies to all policy proposals — a stimulus package cannot take effect 
until bills are passed by the House and Senate, both chambers can reconcile differences between 
their bills, and the President signs the bill. Many bills get delayed at some step in this process. As 
seen in Table 2, many past stimulus bills have not become law until a recession was already 
underway or finished. 40 


1 The International Monetary Fund recently analyzed the “timeliness, temporariness, and targeting’’ of US. tax cuts 
from 1970 to 2008 in International Monetary Fund, World Economic Oullook, Washington. DC, October 2008. p. 172. 


Congressional Research Service 


14 



133 


Economic Stimulus: Issues and Policies 


Table 2. Timing of Past Recessions and Stimulus Legislation 


Beginning of Recession 

End of Recession 

Stimulus Legislation Enacted 

November 1 948 

October 1949 

October 1 949 

August !9S7 

April 1958 

April 1958, July 1958 

April I960 

February 1961 

May 1961, September 1962 

December 1969 

November 1970 

Aug, 1971 

November 1973 

March 1975 

March 1975, July 1976, May 1977 

July 1981 

November 1982 

January 1983, March 1983 

July 1990 

March 1991 

December 1991, April 1993 

March 200 1 

November 200 1 

June 2001 


Source: Bruce Bartlett, "Maybe Too Little, Always Too Late," New York Times. January 23, 2008. 


Second, there is an administrative delay between the enactment of legislation and the 
implementation of the policy change. For example, although the 200S stimulus package was 
signed into law in February, the first rebate checks were not sent out until the end of April, and 
the last rebate checks were not sent out until July. When the emergency unemployment 
compensation (EUC.08) program began in July 2008, there was about a three week lag between 
enactment and the first payments of the new EUC08 benefit. Many economists have argued that 
new government spending on infrastructure could not be implemented quickly enough to 
stimulate the economy in time since infrastructure projects require significant planning. (Others 
have argued that this problem has been exaggerated because existing plans or routine 
maintenance could be implemented more quickly.) Others have argued that although federal 
spending cannot be implemented quickly enough, fiscal transfers to state and local governments 
would be spent quickly because many states currently face budgetary shortfalls, and fiscal 
transfers would allow them to avoid cutting spending. 41 ARRA granted $379 billion of budget 
authority in 2009, but CBO projects that only S120 billion will be outlayed in 2Q09. 4J 

Finally, there is a behavioral lag because time elapses before recipient of a transfer or tax cut 
increases its spending. For example, the initial reaction to the receipt of rebate checks was a large 
spike in the personal saving rate (see above). It is unclear how to target recipients that would 
spend most quickly, although presumably liquidity-constrained households (i.e., those with 
limited access to credit) would spend more quickly than others. In this regard, the advantage to 
direct government spending is that there is no analogous lag. Although monetary policy changes 
have no legislative or administrative lags, research suggests they do face longer behavioral lags 
than fiscal policy changes because households and business generally respond more slowly to 
interest rate changes than tax or transfer changes. 


■" Transfers to state and local governments could be less stimulative than direct federal spending because state and local 
governments could, in theory, increase their total spending by less than the amount of the transfer. (For example, some 
of the money that would have been spent in the absence of the transfer could now be diverted to the state’s budget 
reserves.) But if states are facing budgetary shortfalls, many would argue that in practice spending w ould increase by as 
much as the transfer. 

Congressional Budget Office. Cost Estimate for the Conference Agreement for H.R. 1 . Letter to Honorable Nancy 
Pelosi. February 1 3, 2009. 


Congressional Research Service 


15 



134 


Economic Stimulus: Issues and Policies 


Long-Term Effects 

A main factor in another round of fiscal stimulus may be the size of the current budget deficit. 

The 2009 stimulus package is relatively large, and CBO projects the deficit will already exceed 
$1 trillion in 2009. Deficits of this magnitude would set a peacetime record relative to GDP. 
Although current government borrowing rates are extremely low (because of the financial 
turmoil), there is a fear that a deficit of this size could become burdensome to service when 
interest rates return to normal. A larger deficit could eventually crowd out private investment, act 
as a drag on economic growth, and increase reliance on foreign borrowing (which would result in 
a larger trade deficit). By doing so, the deficit places a burden on future generations, and could 
further complicate the task of coping with long-term budgetary pressures caused by the aging of 
the population. 43 In the highly unlikely, worst case scenario, if too much pressure is placed on the 
deficit through competing policy priorities, then investors could lose faith in the government’s 
ability to service the debt, and borrowing rates could spike. 

Many of these issues could be minimized if the elements of the stimulus package are temporary— 
an increase in the budget deficit for one year would lead to significantly less crowding out over 
time than a permanent increase in the deficit. There is often pressure later to extend policies 
beyond their original expiration date, however. Among policy options, increases in public 
investment spending w'ould minimize any negative effects on long-run GDP because decreases in 
the private capital stock would be offset by additions to the public capital stock. Also, tax 
incentives to increase business investment would offset the crowding out effect since the increase 
in aggregate spending was occurring via business investment. 

The direct effect of the American Recovery and Reinvestment Act on the budget deficit is 
relatively small after 2011, although it leads to a permanent increase in interest payments on the 
national debt if not offset by future policy changes. 


Should Stimulus be Targeted? 

It is clear that the slowdown has been concentrated in housing and financial markets to date. 

Some economists have argued that as long as problems remain in these depressed sectors, then 
generalized stimulus will only postpone the inevitable downturn. For example, as long as 
financial intermediation remains impaired, access to credit markets will be limited and it will be 
difficult for stimulus to lead to sustained growth. (As noted above, separate legislation to support 
housing and financial markets was enacted in 2008.) If so, fiscal stimulus may, at most, provide a 
temporary boost as long as those problems are outstanding, but cannot singlehandedly shift the 
economy to a sustainable path of expansion. For example, the first stimulus package, enacted in 
the first quarter of 2008, did not prevent the economy from deteriorating further in the third 
quarter of 2008. Other economists argue that if the current housing bust is being caused by the 
unwinding of a bubble, then the government could be unable to reverse unavoidable market 
adjustment that is bringing those markets back to equilibrium. But some w'ould argue that the best 
way to help a troubled sector is by boosting overall demand. 


’ See CRS Report RL32747, The Economic Implications of the Long-Term Federal Budget Outlook , by Marc Labonte. 


Congressional Research Service 


16 



135 


Economic Stimulus: Issues and Policies 


Is Additional Fiscal Stimulus Needed? 

The economy naturally experiences a boom and bust pattern called the business cycle. A 
recession can be characterized as a situation where total spending in the economy ( aggregate 
demand) is too low to match the economy’s potential output ( aggregate supply). As a result, some 
of the economy’s labor and capital resources lay idle, causing unemployment and a low capacity 
utilization rate, respectively. Recessions generally are short-term in nature — eventually, markets 
adjust and bring spending and output back in line, even in the absence of policy intervention. 44 

Policymakers may prefer to use stimulative policy to attempt to hasten that adjustment process, in 
order to avoid the detrimental effects of cyclical unemployment. By definition, a stimulus 
proposal can be judged by its effectiveness at boosting total spending in the economy. Total 
spending includes personal consumption, business investment in plant and equipment, residential 
investment, net exports (exports less imports), and government spending. Effective stimulus 
could boost spending in any of these categories. 

Fiscal stimulus can take the form of higher government spending (direct spending or transfer 
payments) or tax reductions, but generally it can boost spending only through a larger budget 
deficit, as is the case with ARRA. A deficit-financed increase in government spending directly 
boosts spending by borrowing to finance higher government spending or transfer payments to 
households. A deficit-financed tax cut indirectly boosts spending if the recipient uses the tax cut 
to increase his spending. If an increase in spending or a tax cut is financed through a decrease in 
other spending or increase in other taxes, the economy would not be stimulated since the deficit- 
increasing and deficit-decreasing provisions would cancel each other out. 

How much additional spending can stimulate economic activity depends on the state of the 
economy at that time. When the economy is in a recession, fiscal stimulus could mitigate the 
decline in GDP growth by bringing idle labor and capital resources back into use. When the 

economy is already robust, a boost in spending could be largely inflationary- since there would 

be no idle resources to bring back into production when spending is boosted, the boost would 
instead bid up the prices of those resources, eventually causing all prices to rise. The recession 
appears to have deepened in the fourth quarter of 2008. By historical standards, the recession 
would be expected to end before fiscal stimulus could be delivered, but forecasters are predicting 
this recession will be longer than usual. Most of the stimulus provided by ARRA will be delivered 
by 20 11 , and CBO is projecting that there will still be a significant output gap at that point. 

Because total spending can be boosted only temporarily, stimulus has no long-term benefits, and 
may have long-term costs. Most notably, the increase in the budget deficit “crowds out’’ private 
investment spending because both must be financed out of the same finite pool of national saving, 
with the greater demand for saving pushing up interest rates. 4 ' To the extent that private 
investment is crowded out by a larger deficit, it would reduce the future size of the economy since 
the economy would operate with a smaller capital stock in the long run. In recent years, the U.S. 
economy has become highly dependent on foreign capital to finance business investment and 


14 For more information, see CHS Report RL34072, Economic Growth and the Business Cycle: Characteristics, 
Causes, and Policy’ Implications, by Marc Labonte. 

45 Crowding out is likely to be less of a concern when the economy is in recession since recessions are typically 
characterized by falling business investment. 


Congressional Research Service 


17 



136 


Economic Stimulus: Issues and Policies 


budget deficits. 46 Because foreign capital can come to the United States on ly in the form of a 
trade deficit, a higher budget deficit could result in a higher trade deficit, in which case the higher 
trade deficit could dissipate the boost in spending as consumers purchase imported goods. Indeed, 
conventional economic theory predicts that fiscal policy has no stimulative effect in an economy 
with perfectly mobile capital flows. 4/ Some economists argue that these costs outweigh the 
benefits of fiscal stimulus. 

Policies Previously Adopted 

Stimulus has also been delivered from other fiscal changes and monetary policy. First, the federal 
budget has automatic stabilizers that cause the budget deficit to automatically increase (and 
thereby stimulate the economy) during a downturn in the absence of policy changes. When the 
economy slows, entitlement spending on programs such as unemployment compensation benefits 
automatically increases as program participation rates rise and the growth in tax revenues 
automatically declines as the recession causes the growth in taxable income to decline. 

Second, any consideration for additional stimulus has to include the effects of stimulus previously 
enacted. According to CBO, the total deficit in FY200S was $455 billion, or 3.2% of gross 
domestic product, sharply higher than the FY2007 deficit of S162 billion. In January 2008, CBO 
had projected that under current policy the budget deficit would increase by $56 billion in 2008 
compared with 2007. When the cost of the February 2008 stimulus package and part of the cost of 
financial market intervention in the fall of 2008 is added, the increase in the deficit for one year 
rose by nearly $300 billion. CBO projects the deficit will increase further in 2009. to $1.2 trillion 
or 8.3% of GDP, in the absence of additional stimulus. These increases in the deficit would also 
be expected to have a stimulative effect on aggregate spending. 

Third, the Federal Reserve has already delivered a large monetary stimulus. By the end of April 
2008, the Fed had reduced overnight interest rates to 2% from 5.25% in September 2007. 48 On 
December 16, the interest rate was lowered to a targeted range of 0% to 0.25%. Typically, lower 
interest rates stimulate the economy by increasing the demand for interest-sensitive spending, 
which includes investment spending, residential housing, and consumer durables such as 
automobiles. Yet. the potential for stimulus caused by lower interest rates can be limited if tight 
credit markets constrain borrowing, lit addition, lower interest rates can stimulate the economy by 
reducing the value of the dollar, all else equal, which would lead to higher exports and lower 

.49 

imports. 

It could be viewed that the Federal Reserve has chosen a monetary policy that it believes will best 
achieve a recovery given the actions already taken. If it has chosen that policy correctly, an 
argument can be made that an additional fiscal stimulus is unnecessary since the economy is 
already receiving the correct boost in spending through lower interest rates and through the first 


l! If' foreign borrowing prevents crowding out, the future size of the economy will not decrease but capital income will 
accrue to foreigners instead of Americans. 

4 For more information, see CRS Report RS2I409, The Budget Deficit and the Trade Deficit: What Is Their 
Relationship ?, by Marc Labonte and Gail K. Makinen. 

4S For interest rate changes see CRS Report 98-856, Federal Reserve Interest Rate Changes: 2001-2009 , by Marc 
Labonte. 

For more infonnation, see CRS Report RL30354, Monetary Policy and the Federal Reserve : Current Policy and 
Conditions , by Marc Labonte. 


Congressional Research Service 


IS 



137 


Economic Stimulus: Issues and Policies 


stimulus package. In this light, additional fiscal stimulus would be useful only if monetary policy 
is unable to adequately boost spending —either because the Fed has chosen an incorrect policy or 
because the Fed cannot boost spending enough through lower interest rates and direct assistance 
to the financial sector to spark a recovery, and direct intervention in financial markets is not 
adequate. 50 (Now that interest rates have fallen to zero, the Fed can no longer reduce rates to 
stimulate the economy, but it can increase — and has increased — its direct assistance to the 
financial sector.) 

Interventions for Financial Firms and Markets 

A number of direct interventions in the economy occurred in 2008 that could be seen as a type of 
stimulus, iti part because of credit problems. One indication of restricted credit despite stimulative 
Federal Reserve monetary policy was the failure of mortgage rates to fall significantly. Instead, 
the spread between Treasury and GSE bonds remained elevated over the summer. The newly 
created Federal Housing Finance Agency (FHFA) cited the persistence of this wide spread as a 
major factor in its decision to place the GSEs in conservatorship in September. During the week 
of September 1 5- 1 9, financial markets were further disturbed by the bankruptcy of investment 
bank Lehman Brothers and Federal Reserve intervention on behalf of the insurer AIG These 
actions eroded market confidence further, resulting in a sudden spike of the commercial paper 
rate spread from just under 90 basis points to 280 basis points, a spike that in times past might 
have been called a panic. If financial market confidence is not restored and private market spreads 
remain elevated, the broader economy could slow more due to difficulties in financing consumer 
durables, business investment, college education, and other big-ticket items. 


In September 2008, Administration and Federal Reserve officials with the bipartisan support of 
the congressional leadership, announced a massive intervention in the financial markets, 
requesting authority to purchase up to $700 billion in assets over the next two years. The Treasury 
had also provided insurance for money market funds, where withdrawals have been significant. 
Congressional leaders and other Members raised a number of issues and made some additional 
proposals, which included setting up an oversight mechanism, restrictions on executive 
compensation of firms from which assets are purchased, acquiring equity stakes in the 
participating firms, and allowing judges to reduce mortgage debt in bankruptcies (not included in 
the final act). 

Later, in October 2008, legislation (P.L. 1 10-343) was enacted to allow an initial S250 billion of 
financing with an additional S 100 billion upon certification of need, with Congress allowed 30 
days to object to the final S350 billion. The plan has oversight by an Inspector General, audit by 
the Government Accountability Office, setting standards of appropriate compensation, and 
providing for equity positions in all participating companies. The final package also added an 
expansion of deposit insurance coverage. There remained, however, concerns about how to price 
acquired assets in a way that balances protection of taxpayers with providing adequate assistance 
to firms. The Treasury had indicated use of a reverse auction mechanism to purchase mortgage 


50 Fed Chairman Ben Bernanke may have hinted at the latter ease when he testified that “fiscal action could be helpful 
in principle, as fiscal and monetary stimulus together may provide broader support for the economy than monetary 
policy actions alone." Quoted in Ben Bernanke, “The fc'eonomic Outlook,’* testimony before the House Committee on 
the Budget, January i 7. 2008. 


Congressional Research Service 


19 



138 


Economic Stimulus: Issues ami Policies 


backed securities, where companies will bid to sell their assets, ft is not clear how well such an 
auction would work with heterogeneous assets. 51 

The Treasury subsequently announced that it would use the first S250 billion authorized to 
purchase preferred stock in financial institutions and has now indicated it will use subsequent 
funds for capital injections, consumer credit (such as auto loans, student loans, small business 
loans, and credit cards) and mortgage assistance. 32 Congressional leaders urged Treasury to 
provide $25 billion in aid to U.S. auto manufacturers. 33 On November 10, a restructuring of 
government assistance to AIG was announced which increased the amount at risk from $143.7 
billion to S 1 73.4 billion, extended the loan length and reduced the interest rate. The Fed also 
announced on October 14 that it would begin purchasing commercial paper. 54 News reports 
indicated the FD1C had a plan, supported by many congressional Democrats, to offer financial 
incentives to companies that agree to reduce monthly mortgage payments, but that this plan was 
opposed by the Bush Administration. 55 On November 23, the government announced a plan to 
assist Citicorp, and on November 25 the Fed revealed plans to purchase $200 billion in asset- 
backed securities through the Term Asset-Backed Securities Loan Facility (TALF); these 
securities are based on auto, credit card, student and small business loans. 

Much of the intervention up to this point had been in the financial markets. However, the Detroit 
automakers (GM, Ford, and Chrysler) asked for S34 billion in loans to forestall bankruptcy. After 
Congress did not adopt an emergency loan of S14 billion in a special post-election session in 
December 2008, the Administration announced, on December 19, that it would provide $17.4 
billion from TARP: $9.4 billion to GM and S4 million to Chrysler. An additional $4 billion would 
be made available for G.M if the remaining $350 billion in TARP funds is approved. On 
December 30. $6 billion in TARP funds were provided for GM AC, the auto financing company. 

The Fed has also announced purchases of commercial paper, $200 billion of asset backed 
securities, and $600 billion of mortgage-related securities; the government has also announced a 
plan to guarantee certain assets of Citigroup and Bank of America. On March 1 8, the Fed 
announced plans to purchase more than $1 trillion in assets, including $750 billion in mortgage 
backed securities and $300 billion in long-term Treasury debt. On March 23, 2009, the Treasury 
announced a plan for a public-private partnership to purchase troubled assets, including one part 
that uses the FDIC to insure loans and another part that would allow access to the Federal 
Reserve’s TALF. 56 


Legislation has been introduced (H.R. 384) by the chairman of the Financial Services Committee 
to regulate the spending of the final $350 billion, but many of the provisions could also be 
achieved through an agreement between Congress and the Administration. There is interest in 
directing some of the funds to directly aid mortgage holders to avoid foreclosure and small 


51 See CRS Report RL34707, Auction Basics: Background for Assessing Proposed Treasury Purchases of Mortgage- 
Backed Securities, by D. Andrew Austin. 

52 Testimony of Interim Assistant Secretary for Financial Stability Neel Kashkari before the House Committee on 
Oversight and Government Reform, Subcommittee on Domestic Policy, November 14, 2008. 

David M. Herszenhiom, "Chances Dwindle on Bailout Plan for Automakers,” New York Times , November 14, p. At. 

54 Federal Reserve Board Press Release, October 14, 2008. 

55 Buinyamin Appelbaum, FDIC Details Plan to Alter Mortgages, Washington Post, November 14, 2008, p. AL 

56 For fiirther discussion, see CRS Report RL34730, Troubled Asset Relief Program: Legislation and Treasury > 
Implementation, by Baird Webel and Edward V. Murphy. 


Congressional Research Service 


20 



139 


Economic Stimulus: Issues and Policies 


business loans, as well as considering oversight issues. Congress could have enacted legislation to 
disallow the release. However, on January 1 5, the Senate defeated a proposal to block the 
spending of the additional funds. 

Among the issues of concern with financial interventions is whether an ad hoc, case-by-case 
intervention is likely to be a successful strategy. A case-by-case strategy can create uncertainty 
and also moral hazard (causing firms to undertake too much risk if they expect to be rescued). 

The creation of TARP represents a shift to a more broad-based approach. The approach of a 
broad-based intervention could take the form of the purchase of troubled assets (as originally 
proposed or through a “bad bank") or the injection of capital (such as the Treasury’s decision to 
purchase preferred stock)! 7 


Author Contact Information 


Jane G. Gravel le 

Senior Specialist in Economic Policy 
jgravclie@crs.loc.gov, 7-7829 

Thomas L. Hungerford 
Specialist in Public Finance 
th unger for d@crs. loc.gov. 7-6422 


Marc Labonte 

Specialist in Macroeconomic Policy 
mlabonte@crs. loc.gov. 7-0640 


57 These issues are discussed in more detail in CRS Report RL34730, Troubled Asset Relief Program: Legislation and 
Treasury Implementation, by Baird Webel and Edward V. Murphy. 


Congressional Resea rch Service 


21 



140 


Senator Boxer. Thank you. 

We are going to ask our witnesses to please take their seats right 
now. Our witnesses, in this order of speaking, unless Secretary 
Salazar is going to work with his colleagues, this is what I have. 
Hon. Steven Chu, Hon. Ray LaHood, Hon. Ken Salazar, Hon. Lisa 
Jackson, Hon. Jon Wellinghoff. That is the array that we have. 

Senator Voinovich. 

Senator Voinovich. I just would like to have the article that I 
referred to in the New York Times put in the record after my state- 
ment, along with the analysis of the job loss by the American 
Council for Capital Formation. 

Senator Boxer. Absolutely, and we will also place in the record 
a number of studies cited by Senator Kerry that shows the oppo- 
site, so everybody sees it. 

While you are all getting ready, we were asked about Secretary 
Vilsack. I explained that he is traveling. But for that he would 
have been here. And I am going to place, ask unanimous consent 
now to place his statement in the record. I am going to quote from 
two sentences. He says “The cost of inaction will have a significant 
effect on our farmers, ranchers and rural communities. While farm- 
ers and ranchers and forest land owners have a lot at stake if we 
fail to act, they have much to gain if we address climate change 
quickly and wisely. And there are significant opportunities for 
landowners in a cap-and-trade program that can help revitalize 
rural America.” And it talks about wealth creation. 

[The referenced statement follows:] 



Statement of 


Thomas J. Vilsack 
Secretary of Agriculture 

Before the 

Committee on Environment and Public Works 
United States Senate 

October 27, 2009 


Madame Chairwoman, Ranking Member Inhofe, and members of the Committee, I 
apologize for not being able to be with you today. Unfortunately, 1 am out of the country 
but I appreciate the opportunity to submit testimony today on the critical role of and 
potential impact on agriculture and forestry in climate change legislation. 

The United States, along with the rest of the world, is facing a crisis. Climate change is a 
serious threat to our economy and national security. This legislation is an important 
opportunity for the US to show international leadership on climate change. I want to 
commend Senators Kerry and Boxer for the introduction of their legislation, which 
provides an important first step towards the passage of comprehensive energy and climate 
legislation in the Senate. The USDA looks forward to continuing to work with the Senate 
on this monumental challenge. 

Farmers, ranchers, and forest landowners are at the crux of the climate change debate. 

The U.S. Climate Change Science Program and Subcommittee on Global Climate 
Change Research reported that forest landowners are already seeing the impacts of 
climate change on the health and productivity of our forests. Drought, catastrophic 
weather events, and disease outbreaks are just some of the potential effects of a warming 
climate. In addition, there continues to be a growing concern that crop yields will suffer 
due to changing weather patterns. Clearly, the cost of inaction will have a significant 
effect on our farmers, ranchers, and rural communities. 

While farmers, ranchers and forest landowners have a lot at stake if we fail to act, they 
also have much to gain if we address climate change quickly and wisely. 1 believe there 
are significant opportunities for landowners in a cap and trade program that can help 
revitalize rural America. Rural America has an unprecedented potential for economic 
development and job growth through new energy technologies. The anaerobic digesters 
and wind will provide landowners with new sources of revenue and wealth creation. 

A robust carbon offsets market will provide farmers, ranchers and forest landowners with 
the potential for new sources of income. Rural communities may have new opportunities 
for growth and competiveness as we enter a new 21 st century economy. To be effective, 
the market will require an infrastructure of people and agencies that can encourage 
landowner participation, provide information to landowners, manage data and resources. 



142 


and maintain records and registries. I believe that USDA, EPA, DOI, DOE, and other 
Federal agencies can meet this need. We must also ensure that agricultural and forest 
offsets provide real, additional, and verifiable greenhouse gas reductions. This is critical 
not only to addressing climate change but to maintaining public confidence in the carbon 
offset program, as well. 

However, we understand the concerns of many in the agricultural and forestry 
community about the potential costs of climate change legislation. I know many of you 
are hearing the same concerns from the farmers, ranchers and forest landowners in your 
states. 

In order to address these concerns, USDA has analyzed costs and benefits of the House- 
passed climate legislation for agriculture. While there are differences between the 
Waxman-Markey legislation and the Kerry-Boxer bill, it is our expectation that the 
impact in agriculture will be similar. Our preliminary analysis demonstrates that 
economic opportunities for farmers and ranchers can outpace - perhaps significantly — 
the costs from climate legislation. 

Let’s first look at the cost side. Agriculture is an energy intensive sector with row crop 
production particularly affected by energy price increases. For example, fertilizer and 
fuel costs account for 50 to 60 percent of variable costs of production for com. While 
most of the direct energy price increases would be felt immediately by the agricultural 
sector, fertilizer costs would likely be unaffected until 2025 due to provisions in HR 2454 
that would distribute specific quantities of emissions allowances to “energy- intensive, 
trade exposed entities” (EITE). In absence of the EITE provisions, higher fertilizer prices 
could lead to an average annual increase in crop production expenses of $1 .4 billion in 
real 2005 dollars over 2012-18. 

Increases in fuel prices are expected to raise overall annual average farm expenses by 
about $700 million between 2012 and 2018, or about 0.3%. Annual net farm income as a 
result of these higher energy prices is expected to fall by about 1 percent. These 
estimates are conservative, for example they assume that in the short term farmers are 
unable to make changes in input mix in response to higher fuel prices — so they likely 
overestimate the costs to farmers. Over longer time frames, the estimated impacts of HR 
2454 are modest and suggest a decline of annual net farm income of $2.4 billion, or 
3.5%, in 2030 and $4.9 billion, or 7.2%, in 2048. These estimates are likely an upper 
bound on the costs, because they fail to account for farmers’ proven ability to innovate in 
response to changes in market conditions. 


The medium to long term analyses are conservative given the observation that energy use 
per unit of output has declined significantly over the past several decades. Because of 
this, our estimates are likely an upper bound estimate on the costs because they fail to 
account for farmers’ ability to fully respond to changes in market conditions. Our 
analysis is also conservative because it doesn’t account for revenues to farmers from 
biomass production for bioenergy. A number of studies have examined the effects of 


2 



143 


higher energy costs with models that allow for expected changes in production 
management practices and switching to bioenergy crops. 1 ' 1 Based on the analysis of 
Schneider and McCarl. for example, allowing for changes in input mix and revenues 
from biomass production - but without accounting for income from offsets it is 
estimated that annual net farm income would increase in 2030 by about $0.6 billion or 
less than 1 percent. By 2045, annual net farm income is estimated to increase by more 
than $2 billion or 2.9%. 

The creation of an offset market will create new opportunities for the agricultural sector. 
In particular, our analysis indicates that annual returns to farmers and ranchers range 
from about $1 billion per year in 2015-20 to almost $15-20 billion in 2040-50, not 
accounting for the costs of implementing offset practices. In the short term, the economic 
benefits to agriculture from cap-and-trade legislation will likely outweigh the costs. In the 
long term, the economic benefits from offsets markets easily trump increased input costs 
from cap-and-trade legislation. Let me also note that we believe these figures are 
conservative because we aren't able to model the types of technological change that are 
very likely to help farmers produce more crops and livestock with fewer inputs. Second, 
the analysis doesn’t take into account the higher commodity prices that farmers will very 
likely receive as a result of enhanced renewable energy markets and retirement of 
environmentally sensitive lands domestically and abroad. Of course, any economic 
analysis such as ours has limitations. But, again, we believe our analysis is conservative - 
it’s quite possible farmers will actually do better. None of this analysis includes the 
potential benefit arising from new energy jobs that will come from constructing, 
operating, and maintaining new infrastructure for renewable energy. 

We recognize that climate legislation will affect different landowners in different ways. 
USDA can help smooth this transition by using our Farm Bill conservation and 
renewable energy programs to assist landowners in adopting new technologies and 
stewardship practices. 

1 want to thank the Committee for its interest and involvement on climate change. The 
leadership you provide will help farmers, ranchers and forest landowners participate in 
and benefit from climate legislation. The participation of rural landowners is, I believe, 
vitally important to the success of any cap and trade program. USDA looks forward to 
working with you as we move forward in building a stronger rural America. 


3 



144 


Senator Boxer. So we are going to place this, and we are proud 
to have Secretary Vilsack’s support for a good climate change bill. 

We are honored to have this array of experts with us from the 
Administration, and we thank you for your patience. Sometimes I 
know it seems interminable, but I think it is also important for you 
to hear from each of us, so you know exactly the issues that we are 
all dealing with. 

So is there any change in the order? Or we can stick with it? OK. 
The Honorable Steven Chu, Secretary, United States Department 
of Energy. Welcome. 

STATEMENT OF HON. STEVEN CHU, SECRETARY, 

U.S. DEPARTMENT OF ENERGY 

Mr. Chu. Thank you, Chairman Boxer, Ranking Member Inhofe, 
members of the committee. Thank you for the opportunity to testify 
today. 

When I appeared before you in July, I focused on the energy 
challenge and the grave threat from climate change. The Intergov- 
ernmental Panel on Climate Change found in 2007 that the best 
estimate for the rise in the average global temperature by the end 
of this century would be more than 7 degrees Fahrenheit if we con- 
tinued on a high growth fossil fuel intensive course. 

A 2009 MIT study found a 50 percent chance of a 9 degree rise 
in the century and a 17 percent chance of a nearly 11 degree in- 
crease. Eleven degrees might not sound like much, but during the 
last Ice Age, when Canada and much of the United States were 
covered all year in a glacier, the world was only about 11 degrees 
colder. A world 11 degrees warmer would be very different as well. 

Today I want to focus on the other half of the energy equation, 
the energy opportunity. The world now realizes that its current 
level of greenhouse gas emissions is unsustainable. In the coming 
years, there will be a vigorous effort to limit carbon pollution that 
will require a massive deployment of clean energy technologies. 
The only question is, which countries will invent, manufacture and 
export these clean technologies, and which countries will become 
dependent on foreign products? 

The Energy Information Administration, an independent statis- 
tical agency within the Department of Energy, recently estimated 
the market for a few clean energy technologies. It based its anal- 
ysis on a scenario derived by the International Energy Agency that 
could prevent the worst changes to our climate. The EIA found 
globally the cumulative investment in wind turbines and solar pho- 
tovoltaic panels from now to 2030 could be $2.1 trillion and $1.5 
trillion respectively. The policy decisions we make today will deter- 
mine the U.S. share of this market. And many additional dollars, 
jobs and opportunities are at stake in other clean energy econo- 
mies. 

China has already made its choice. China is spending about $9 
billion a month on clean energy. It is also investing $44 billion by 
2012 and $88 billion by 2020 in ultra-high voltage transmission 
lines. These lines will allow China to transmit power from huge 
wind and solar farms far in the western part of China to its cities 
on the eastern coast. 



145 


While every country’s transmission needs are different, this is a 
clear sign of China’s commitment to developing renewable energy. 

The United States, meanwhile, has fallen behind. The world’s 
largest turbine manufacturing company is headquartered in Den- 
mark. Ninety-nine percent of the batteries that power America’s 
hybrid cars are made in Japan. We manufactured more than 40 
percent of the world’s solar cells as recently as the mid-1990s. 
Today we produce only 7 percent. 

When the gun sounded on the clean energy race, the United 
States stumbled. But I remain confident that we can make up 
ground. When we gear up our research and production of clean en- 
ergy technologies, we can still surpass any other country. 

This work began in earnest with the American Recovery and Re- 
investment Act. That Act includes $80 billion to put tens of thou- 
sands of Americans to work, developing new battery technologies 
for hybrid vehicles, making our homes and businesses more energy 
efficient, doubling our capacity to generate renewable electricity, 
and modernizing the grid. 

In fact, today, President Obama will announce an investment of 
more than $3.4 billion in smart grid projects across the country. 
This is a major down payment on a more robust, more flexible elec- 
tricity transmission and distribution system. 

However, to truly seize the opportunity, we must enact com- 
prehensive energy and climate legislation. I commend Chairman 
Boxer and Senator Kerry for bringing forward this legislation. The 
most important element of this bill is that it puts a cap on carbon 
emissions that ratchets down over time. That critical step will 
drive investment decisions for clean energy. 

Imagine, for example, you own a power company and are consid- 
ering building more generating capacity. You can build a new coal- 
fired plant or a new nuclear plant. These are serious, multi-billion 
dollar investments, and they will last 60 years. If you knew that 
carbon emissions had to decrease, would you build a coal plant 
without carbon capture and storage technology? Would a nuclear 
power plant look more attractive? Would you consider investing in 
wind and solar? 

On-again and off-again incentives will not drive the level of clean 
energy investment we need. A cap on carbon will give the energy 
industry the long-term direction and certainty that it needs to 
make appropriate technology and capital investment decisions. 

To achieve our long-term goals in a cost effective way, we will 
also need a sustained commitment to research and development. 
Only R&D will deliver a new generation of clean technologies. 
Much of this work is underway at the Department of Energy using 
resources provided in the Recovery Act. However, continued invest- 
ment will be needed. 

S. 1733 would continue portions of this work, and the legislation 
reported by Chairman Bingaman’s committee would also bolster 
these efforts. I applaud you for holding this hearing and look for- 
ward to working with this committee and the full Senate to swiftly 
pass comprehensive clean energy and climate legislation. Thank 
you. 

[The prepared statement of Mr. Chu follows:] 



146 


Statement of 

Steven Chu 
Secretary of Energy 

Before the 

Committee on Environment and Public Works 
United States Senate 
Washington, D.C. 

October 27, 2009 

Chairman Boxer, Ranking Member Inhofe, Members of the Committee, thank 
you for the opportunity to testify today. 

When I appeared before you in July, I focused on the energy challenge and the 
grave threat from climate change. The Intergovernmental Panel on Climate Change 
found in 2007 that the best estimate for the rise in average global temperature by the end 
of this century would be more than 7 degrees Fahrenheit if we continued on a high 
growth, fossil fuel intensive course. A 2009 MIT study found a fifty percent chance of a 
9 degree rise in this century and a 1 7 percent chance of a nearly 1 1 degree increase. 
Eleven degrees may not sound like much, but, during the last ice age, when Canada and 
much of the United States were covered all year in a glacier, the world was only about 1 1 
degrees colder. A world 1 1 degrees warmer will be very different as well. 

Today, I want to focus on the other half of the energy equation: the energy 
opportunity. 

The world now realizes that its current level of greenhouse gas emissions is 
unsustainable. In the coming years, there will be a vigorous effort to limit carbon 
pollution that will require a massive deployment of clean energy technologies. The only 
question is - which countries will invent, manufacture, and export these clean 
technologies and which countries will become dependent on foreign products? 

The Energy Information Administration - an independent statistical agency 
within the Department of Energy - recently estimated the market for a few key clean 
technologies. It based its analysis on a scenario derived by the International Energy 
Agency that could prevent the worst changes to our climate. 

EIA found that, globally, the cumulative investment in wind turbines and solar 
photovoltaic panels from now through 2030 could be $2.1 trillion and $1.5 trillion, 
respectively. The policy decisions we make today will determine the U.S. share of this 
market. And many additional dollars, jobs and opportunities are at stake in other clean 
technologies. 


1 



147 


China has already made its choice. China is spending about $9 billion a month on 
clean energy. It is also investing $44 billion by 2012 and $88 billion by 2020 in Ultra 
High Voltage transmission lines. These lines will allow China to transmit power from 
huge wind and solar farms far from its cities. While every country’s transmission needs 
are different, this is a clear sign of China’s commitment to developing renewable energy. 

The United States, meanwhile, has fallen behind. The world’s largest turbine 
manufacturing company is headquartered in Denmark. 99 percent of the batteries that 
power America’s hybrid cars are made in Japan. We manufactured more than 40 percent 
of the world’s solar cells as recently as the mid 1990s; today, we produce just 7 percent. 

When the starting gun sounded on the clean energy race, the United States 
stumbled. But I remain confident that we can make up the ground. When we gear up our 
research and production of clean energy technologies, we can still surpass any other 
country. 

This work began in earnest with the American Recovery and Reinvestment Act. 
The Recovery Act includes $80 billion to put tens of thousands of Americans to work 
developing new battery technologies for hybrid vehicles, making our homes and 
businesses more energy efficient, doubling our capacity to generate renewable electricity, 
and modernizing the electric grid. In fact, today, President Obama will announce an 
investment of more than $3.4 billion in smart grid projects across the country. This is a 
major down payment on a more robust, more flexible electricity transmission and 
distribution system. 

However, to truly seize this opportunity, we must enact comprehensive energy 
and climate legislation. I commend Chairmen Boxer and Kerry for bringing forward this 
legislation. 

The most important element of this bill is that it puts a cap on carbon emissions 
that ratchets down over time. That critical step will drive investment decisions toward 
clean energy. 

Imagine, for example, that you own a power company and are considering 
building more generating capacity. Building a new coal-fired power plant or a new 
nuclear plant is a serious, multi-billion dollar investment. And these investments could 
last at least 60 years. If you knew that carbon emissions had to decrease, would you 
build a coal plant without carbon capture and storage technology? Would the nuclear 
plant look more attractive? Would you consider investing in wind and solar? 

On-again, off-again incentives will not drive the level of clean energy investment 
we need. A cap on carbon will give the energy industry the long-term direction and the 
certainty it needs to make appropriate technology and capital investment decisions. 


2 



148 


To achieve our long-term goals in a cost-effective way, we will also need a 
sustained commitment to research and development. Only R & D can deliver a new 
generation of clean technologies. 

Much of this work is underway at the Department of Energy using the resources 
provided in the Recovery Act. However, continued investment will be needed. S. 1733 
would continue portions of this work, and the legislation reported by Chairman 
Bingaman’s committee would also bolster these efforts. 

I applaud you for holding this hearing and look forward to working with this 
committee and the full Senate to swiftly pass comprehensive clean energy and climate 
change legislation. Thank you. 


3 



149 


Environment and Public Works Committee Hearing 
October 27, 2009 

Follow-Up Questions for Written Submission 

Questions for Chu 
Questions from: 

Senator Frank R. Lautenberg 

1. I have worked with Chairman Boxer and other members of the Committee 
to increase the amount of funding for researching and developing the next 
generation of clean energy technology, which will fundamentally shift the 
way we use energy, while creating jobs and stimulating the economy. Can the 
U.S. successfully transition to a clean energy economy-and create the jobs 
that come along with it-if we fail to provide a significant investment in 
research and development by our most promising scientists and engineers? 

We have many low-carbon technologies available to us today, and we should put in place 
stable policies including comprehensive energy and climate legislation to deploy them 
and thereby reduce our carbon emissions. 

Much of the current R&D activities underway at the Department of Energy using 
the resources provided in the Recovery Act work toward a successful transition. 

However, continued investment will be needed. 



150 


Senator James M. Inhofe 

1. Do you agree that the worker adjustment assistance provisions in Title 3, 
Part 2, sections 311 through 313 in Kerry-Boxer are needed because this bill 
will cost jobs? 

No. As 1 stated in my testimony, 1 believe that passing legislation that sets long-term 
carbon targets will send a signal to American industry that will result in innovation and 
new jobs. However, there will be some shifts in employment among various sectors 
during the transition to a low-carbon economy, and the provision you refer to is intended 
to address this. 

2. 1 understand new legislation usually entails new programs. But Sen. Webb 
compared the bureaucracy in Lieberman-Warner to "the old Soviet Union. 
Lieberman-Warner was 344 pages. Kerry-Boxer is 923 pages. Waxman- 
Markey is 1,400 pages. How would you describe the bureaucracy and 
mandates in this bill? And if this a market-based approach, why is all of this 
necessary? 

As I stated in my testimony, I believe the most important element of this bill is that it puts 
a cap on carbon emissions that ratchets down overtime. That critical step will drive 
investment decisions toward clean energy. I do not have a view as to what is the 
appropriate number of pages for comprehensive clean energy and climate change 
legislation, but I am ready to work with you and other members of this committee and the 
Senate to craft a bill that moves us to a low-carbon, clean energy economy in the most 
efficient and effective way. 

3. Traditionally, DOE has focused its efforts on supporting RD&D related to 
development and early demonstrations of advanced unproven energy 
technologies. But in today's economic and financial markets there is a 
substantial gap, often called the "valley of death", in moving from 
development and demonstration to first-of-a-kind commercial-scale 
deployment of clean energy and CCS technologies. Would you agree that we 
face a "valley of death" problem with CCS technology deployment? If so, 
how can it be addressed? 

Through the Recovery Act and other measures, DOE is currently investing more than $4 
billion in CCS projects. This investment is being leveraged by contributions from the 
private sector that reach almost $7 billion, indicative of the role DOE plays in mitigating 
the risks associated with early deployment of new technologies and helping to minimize 
the time required to deploy. In addition, advanced technology for Enhanced Oil Recovery 
using C02 injection, which is included in some Recovery Act projects, can stimulate 
development of the CCS transportation infrastructure that will facilitate CCS deployment. 
There are a number of mechanisms that could be used to build on this work, some of 
which are included in the Kerry-Boxer bill. 



151 


4. Given the recognized importance of avoiding "carbon leakage" for energy- 
intensive trade-exposed industries and the early deployment opportunities 
for industrial with CCS, shouldn't industrial projects be included in the first 
tranche of CeS deployment bonus allowances under the K,;,B (first 10 GW 
tranche now allocated solely to utilities)? 

DOE is investing more $4 billion in CCS, which will be matched by up to almost $7 
billion more from U.S. industry. Of the $4 billion, approximately $1.3 billion of this 
amount will support an additional five to seven industrial scale demonstration projects 
retrofitting existing industrial facilities with innovative new carbon capture technologies. 

5. With, and without, a unilateral "carbon price signal," how do you envision 
the timeline and scope of CCS commercial deployment, industrials and 
power? 

I believe we must make it our goal to advance carbon capture and storage technology to 
the point where widespread, affordable deployment can begin in 8 to 10 years. 1 am 
convinced that this timeline can be achieved, but it will require sustained investment. 
DOE is investing more than $4 billion in CCS, which will be matched by up to almost $7 
billion more from U.S. industry. I am also encouraged by the commitments other 
countries have made, and the international partnerships that are forming to drive this 
technology forward. 

6. What other commercialization program elements need to be in place? Given 
current limitations in private capital formation or mobilization, how can 
DOE successfully manage CCS technology to assure near-term commercial 
deployment? 

As noted above, I believe that the most important element of this bill is that it puts a cap 
on carbon emissions that ratchets down over time. That critical step will drive 
investment decisions towards clean energy, including CCS technology. DOE’S applied 
R&D will also help to increase efficiency and reduce costs of CCS technologies. 

7. Is there urgency to better "rationalize" the full array of CCS technology 
RDD&D? How could this leverage the potential for deployment acceleration 
and the cost savings opportunities of non-utility industrials? 

As noted above, through the Recovery Act and other measures, DOE is currently 
investing more than $4 billion in CCS projects. These funds and programs will support 
research and development across a range of CCS applications. Secretary Chu has 
recently stated the goal of having CCS technology to the point widespread, affordable 
deployment can begin in 8 to 10 years. 

8. I read the proposal out of the Vice President's office that your department 
uses Recovery Act funding for a home energy labeling program that is still 
pending in legislation before Congress. Last I checked it's up to Congress to 



152 


authorize programs and administrative agencies to implement them. Do you 
think that's wise to move forward with the home energy labeling program 
before Congress has had a chance to finish discussing it? 

DOE has existing authorities to support the program you refer to, though DOE of course 
stands ready to work with Congress on pending legislation. 

9. Your own inspector general concluded in a recent audit, reported by the 
New York Times, that the Department is failing to properly track whether 
manufacturers that give their appliances an Energy Star label have met the 
required specifications for energy efficiency. Now you're proposing to energy 
star label every home in America. If you are not able to offer the American 
public confidence in the energy efficiency of a simple household appliance, 
how are you going to do that when it comes to existing homes, where there 
are so many more variables to account for? 

DOE is taking aggressive action to address the findings of the 1G audit. DOE is pursuing 
the home labeling program you refer to because home energy use and bills can be 
substantial, and we believe that American consumers will reap substantial benefits from 
having access to robust, reliable information about home energy performance. DOE is 
also increasing its focus on enforcement in this area and has recently announced the 
creation of an enforcement team in the office of the general counsel. 

10. The "Recovery Through Retrofit" Report, released by the Office of the Vice 
President on October 19, 2009, proposes creation of an "Energy Performance 
Label and Measure" for existing homes. Please describe: 

a) the specific statutory authorities and exactly how funding under the Recovery Act 
(Public Law 111-5) will be used to develop and implement this proposal. And will 
use of these home energy labels and measures become a condition for state 
governments to receive funding for any state energy program, energy efficiency and 
conservation block grants or any other energy efficiency/conservation program? 

This proposal will be implemented pursuant to the Energy Conservation Standards for 
New Buildings Act of 1976, the Department of Energy Organization Act of 1977, and the 
Energy Policy and Conservation Act of 1975, as amended. Funding under the Recovery 
Act will be used only in accordance with the provisions thereof. Funding for the State 
Energy Program and the Energy Efficiency and Conservation Block Grant Program will 
be provided consistent with the statutory and regulatory provisions governing those 
programs. 


b) the opportunities that will be provided for stakeholders and the general public to 
provide their input on the impacts this proposal could have on the current housing 
market; and 



153 


Building labels will be created pursuant to the normal labeling process, which includes a 
substantial opportunity for public comment and participation. 

c) the process and procedures by which the DOE, EPA or both will assure that an 
home’s energy label accurately characterizes and adequately captures the 
variability in the designed and achieved performance of existing homes and that 
existing homes that receive an Energy Star label under the Administration's 
proposal will in fact, meet the specifications of that label. 

DOE is developing testing protocols that will validate the labels by benchmarking them 
against the homes' actual electric and gas consumption. We intend to continue this 
sampling process indefinitely as we continuously improve the software and methodology 
for creating the label. Labels will only be generated by individuals certified to do so 
using methods approved by DOE and EPA. We expect that the label ratings will be based 
on an appropriate computer simulation of the building's energy use. The labels will 
advise the consumer that actual energy use will vary depending on how the building is 
operated. 

11. Section 163 would require the EPA Administrator, or other agency head or 
heads designated by the President, to promulgate regulations establishing 
building code energy efficiency targets by January 1, 2014. Which agency is 
best equipped to establish national energy efficiency building targets, the 
DOE or the EPA? 

DOE and EPA work closely on a range of energy efficiency programs. Traditionally, 
DOE has taken the lead on building codes; in addition, DOE is the lead for building 
efficiency standards under a recently signed EPA-DOE Memorandum of Understanding. 

12. Under current law, the DOE is charged with making determinations on 
national model energy codes and participates in the development of those 
codes. Does Section 163 conflict with the DOE’s current responsibilities? 

Section 163 appears to create a binding, national energy code. Such a code does not exist 
under current law. 

13. When will loan guarantees for new nuclear plants be issued? 

As 1 stated at the hearing, DOE is working hard to finalize and make conditional awards. 

1 remain hopeful that the first conditional awards will be made in the coming months. 

14. In the 2009 Omnibus Appropriations Act, Congress directed DOE to provide 
a report describing the development of the credit risk subsidy model and the 
economic assumptions used for the energy markets and technologies under 
consideration to receive loan guarantees. When will you submit that report? 

We will provide you a copy of the report, which was recently submitted to Congress. 



154 


15. If Yucca Mountain is not an option, when do you anticipate ceasing 
payments from the Nuclear Waste Fund to the State of Nevada? 

This is an issue that will be addressed in future year budgets, and I am unable to provide 
information about such budgets at this time. 

16. Since the Administration currently has no plan for the disposal of nuclear 
waste and spent nuclear fuel and no corresponding cost estimate, please 
provide a detailed justification for why the one mil fee shouldn't be adjusted 
commensurate with spending on the Yucca Mountain program. 

The federal government retains the responsibility for the permanent disposal of spent nuclear fuel. 
The fees to which you refer will be used to fund that permanent solution. The Department of 
Energy has consistently determined, as required by the Nuclear Waste Policy Act, that the current 
fee of 1/1 0-cent per kilowatt hour is adequate to cover the total system life cycle costs of 
disposing of commercial spent nuclear fuel and high-level radioactive waste, using the 
assumptions in place at the time; and, in accordance with the Act, the fee will continue to be 
reviewed annually. 

17. When will the blue ribbon commission on nuclear waste be established? 

The details about the commission will be announced soon. 

IS. Will the blue ribbon commission consider Yucca Mountain as a potential site 
for a repository? If not, will the pane) propose alternative locations or 
recommend a site selection process? 

The details about the commission will be announced soon. 

19. In what time frame do you ultimately foresee the Federal Government 
disposing of nuclear waste and spent nuclear fuel? 

DOE will meet its obligations to permanently dispose of spent nuclear fuel and high-level 
waste. With respect to spent nuclear fuel, I believe it would be premature to set a 
deadline at this time. 1 am confident that, as the NRC has also indicated, spent nuclear 
fuel is safe in current dry storage facilities for many decades, I also look forward to the 
Blue Ribbon Commission’s recommendations regarding nuclear waste storage, 
reprocessing and disposal of spent nuclear fuel. 



155 


Senator George V. Voinovich 

1) Secretary Chu - Mr. Secretary, thank you for being here. As I am sure you are 
aware, language included in the Energy and Water Appropriations Bill expected 
you to suspend collection of payments to the Nuclear Waste Fund, because electric 
customers are paying for something they aren't getting - a permanent site to store 
spent nuclear fuel. I would like to know, given the Administration's decision to 
terminate the Yucca Mountain repository program what is your specific strategy to 
execute the statutory obligations of managing nuclear waste consistent with the 
Nuclear Waste Policy Act? As a possible alternative, would DOE cooperate with 
private entities that are interested in developing NRC licensed, private storage 
facilities - with DOE accepting the used fuel at the nuclear power plants, 
transporting the fuel to the private facility and contracting with the facility for 
storage services? As another alternative, would DOE provide storage for spent fuel 
at unused DOE facilities? 

DOE will meet its obligations to dispose of spent nuclear fuel and high-level waste. The 
fees to which you refer will be used to fund that permanent solution. Your question also 
identifies several interim strategies for meeting these obligations. 1 expect that the Blue 
Ribbon Commission that will soon be announced will examine these and other options. I 
look forward to receiving those recommendations and working with Congress to set a 
new path forward. 

2) Secretary Chu - Mr. Secretary, can you explain your vision for the Blue Ribbon 
Commission on Nuclear Waste. What is your schedule for putting this Commission 
together - and what is the time frame for their final recommendations? Do you 
believe this Commission will shed new light on a problem that DOE has extensively 
researched for the past 30 years? 

The details about the commission will be announced very soon, and yes, 1 am very 
optimistic that new light can be shed on the problem of nuclear waste. I look forward to 
the commission’s recommendations regarding nuclear waste storage, reprocessing and 
disposal of spent nuclear fuel. 

3) Secretary Chu - I know that environmental groups have been placing pressure on 
you to deny loan guarantees for nuclear power plants if the NRC has questions 
regarding their design certifications. Does this factor into your decision for 
providing loan guarantees for nuclear plants? When can we expect a decision for 
the leading four nuclear power plant applications? 

As 1 stated at the hearing, DOE is working hard to finalize and make conditional awards. 

1 remain hopeful that the first conditional awards will be made in the coming months. 

4) Secretary Chu - If carbon emissions are to be reduced by 83 percent by 2050, 
most energy technologies we use today will be obsolete. In Ohio, where more than 87 
percent of electricity comes from coal, I am very interested in new technologies 



156 


being developed to utilize this abundant resource in cleaner, more efficient ways so 
as to generate the needed energy for Ohioans. What do you see as the Federal 
government's role in making sure that adequate technologies such as Carbon 
Capture and Sequestration exist, especially as it relates to coal? Is the federal 
government and/or private industry currently investing enough in energy research 
and development to allow the US to incorporate the technologies that will allow us to 
reach our midterm and long term emission reduction goals? 

I believe we must make it our goal to advance carbon capture and storage technology to 
the point where widespread, affordable deployment can begin in 8 to 10 years. Through 
the Recovery Act and other measures, DOE is currently investing more than $4 billion in 
CCS projects. This investment is being leveraged by contributions from the private 
sector that reach almost $7 billion, indicative of the role DOE plays in mitigating the 
risks associated with early deployment of new technologies and helping to minimize the 
time required to deploy. In addition, advanced technology for Enhanced Oil Recovery 
using C02 injection, which is included in some Recovery Act projects, can stimulate 
development of the CCS transportation infrastructure that will facilitate CCS deployment. 
I am convinced that this timeline can be achieved, but it will require rapid adoption of 
clear and stable enabling policies. 

5) Secretary Chu - President Obama in his address to a joint session of Congress 
earlier this year called for IS percent of cap and trade revenues to be used for 
research and deployment, yet the research component of the House ACES 
legislation allocations was only about one percent. The Boxer-Kerry draft increases 
this investment slightly, but not nearly to the amount called for by the President. 
What are the consequences of having such limited support for energy research? 

We have many low-carbon technologies available to us today, and we should deploy 
them to reduce or carbon emissions. Our investment in energy R & D helps develop new 
technologies that may help enable us to meet our long-term emissions targets even more 
cost-effectively than we can today. 

6) Secretary Chu - As I am sure you are aware, several Ohio institutions and 
businesses were successful in winning funding through the first round of ARP A-E 
awards. I wish I could take credit, but it is our outstanding scientists and engineers 
that really deserve the accolades. Is ARP A-E the best way to fund "high-risk, high- 
reward" research that has the best chance of commercialization? What do you think 
it will take to commercially develop viable carbon capture and storage technology? 


I believe we must make it our goal to advance carbon capture and storage technology to 
the point where widespread, affordable deployment can begin in 8 to 1 0 years. I am 
convinced that this timeline can be achieved, but it will require sustained investment. 
DOE is investing more than $4 billion in CCS, which will be matched by up to almost $7 
billion more from U.S. industry. I am also encouraged by the commitments other 
countries have made, and the international partnerships that are forming to drive this 



157 


technology forward. With respect to ARPA-E, I do not have a definitive answer at this 
time. However, I know that the recently-confirmed ARPA-E director will be looking 
across the energy technology portfolio to determine which technologies have technical 
barriers that could be addressed by this important program. 

7) Secretary Chu -In your statement you mention DOE's investment of more than 
$3.4 billion in smart grid projects across the country. Can you give this committee a 
sense of the total investment that will be needed to create the electricity and 
transmission distribution system that will be necessary to more fully utilize solar 
and wind technologies (estimates vary from $60 billion to $100 billion). With the 
funding how long would it take to upgrade the grid? What hurdles would need to be 
overcome? Are there provisions in Kerry-Boxer to address those hurdles? 

As you point out, the cost estimates for upgrading our electricity transmission and 
distribution system vary', but there is no question that the total price tag is in the tens and 
hundreds of billions of dollars. As I noted in my testimony, I believe the most important 
element of this bill is that it puts a cap on carbon emissions that ratchets down over time. 
That critical step will drive investment decisions toward clean energy, including 
investments in transmission. However, the bill includes a number of other provisions that 
focus on research, development and deployment of clean energy technologies. Finally, 
there are issues around siting that need to be addressed. 

8) Secretary Chu - You have said in the short term, energy efficiency will be our 
most effective tool for reducing our carbon emissions. How close will today's 
marketplace energy efficiency technologies get us to our energy efficiency goals for 
2020, 2030, and 2050? What specifically will Kerry-Boxer to help get us the rest of 
the way? 

As I noted in my testimony, I believe the most important element of this bill is that it puts 
a cap on carbon emissions that ratchets down over time. That critical step will drive 
investment decisions toward clean energy, including investments in transmission. I 
believe that there are a number of policies to drive investments in energy efficiency. 
Minimum energy performance standards for appliances will continue to be important. 
Finding ways to more efficiently deliver and finance energy efficiency services to 
American families will be important. Aligning incentives for utilities to make 
deployment of energy efficiency will be important. The potential for energy efficiency is 
very substantial, but a range of tools and a sustained effort will be needed to realize the 
potential. 

9) Secretary Chu - What do you believe is a credible estimate for the number of 
reactors that could be constructed in the U.S. with and without a climate bill by 
2020? What about 2030 and 2050? How is the DOE engaged in developing a 
stronger nuclear industry in the U.S.? Do you believe existing designs for small, 
modular reactors are currently technologically feasible? Would you agree that 
having a domestic capability for manufacturing the entire reactor in the U.S. 
(including large forgings for existing Oen in and Oen III+ reactors, and smaller 



158 


forgings for small and medium reactors) would be the best approach for growing 
and maintaining a strong domestic nuclear industry? 

I do not have an estimate for how many reactors can be built within the specific 
timeframes that you mention, but 1 would observe that the current fleet of reactors was 
built during a similar length of time. DOE is working hard to finalize and make 
conditional loan guarantee awards. I remain hopeful that the first conditional awards will 
be made in coming months. In addition, DOE’s current research and development 
program includes work on advanced reactor systems that could provide improved 
economic performance, safety, and proliferation-resistance. Finally, the bill sets carbon 
emissions targets that ratchet down over time, which will favor nuclear and other low- 
carbon energy technologies. Indeed, EIA and EPA analyses of cap-and-trade proposals 
have predicted a significant expansion of nuclear power under cap-and-trade proposals 
similar to Kerry-Boxer. 



159 


Senator David Vitter 


1. Mr. Secretary on October 8, 2009 you responded to a question about a few 
corporations leaving the Chamber by exclaiming "I think it's wonderful." 

a. Would you please tell me what facts about the Chamber you relied upon to 
support the statement that the departures were "wonderful"? 

b. In arriving at your position about the Chamber would you please tell me what 
Chamber documents you reviewed in formulating your position? 

c. In formulating your position about the Chamber, did you have any discussions 
with any of the White House staff? What was the substance of the discussion? 

d. In formulating your position about the Chamber, please tell me what 
environmental organizations you had conversations with about the Chamber and 
its position on climate change? 

e. In formulating your position about the Chamber please tell me what 
corporations or individuals you had conversations with about the Chamber? 

My comments about the Chamber reflect my belief, as stated in my testimony, that 
comprehensive clean energy and climate change legislation is essential to American 
economic competiveness in the future. A growing number of businesses agree. 

2. On the same day, according to press reports, you stated: "I think companies like 
that-Exelon, for example, others-are saying that we have to recognize the reality: In 
order to position the United States in an economically competitive place, and also to 
minimize the dangers of significant climate change for our children and 
grandchildren, we have got to go in this direction." 

a. Mr. Secretary, according to Bernstein Research, Exelon's CEO John Rowe told 
investors that if the climate legislation being proposed is passed Exelon will 
initially receive $700 to $750 million in annual revenues for every $10 per metric 
ton increase in the price of C02 allowances. Mr. Rowe estimates that climate 
legislation will contribute 67 to 72 cents per share in 2012 and as the price of 
allocations rise Exelon will receive $1 to $1.30 cents per share, courtesy of the U.S. 
taxpayers. My question is: Does the Obama administration support giving tens of 
billions of taxpayers' dollars to a corporation just because the corporation 
supported the administration's policy objectives? 

My comments about Exelon reflect my belief, as stated in my testimony, that 
comprehensive clean energy and climate change legislation is essential to American 
economic competiveness in the future. I also believe that the legislation will create 
powerful incentives for energy companies to invest in the development and deployment 
of the technologies what we need to meet our energy and climate challenges. 

3. Mr. Secretary, you said on April 23, 2007, that "Coal is my worst nightmare." 

Yet this bill that we are being asked to consider places a great deal of responsibility 
in your hands for the future of coal, including but not limited to the formation of a 
national strategy for carbon capture and sequestration deployment. How will you 
reconcile your obvious dislike of coal as an energy technology' for this massive new 



160 


responsibility not only to get CCS deployed, but get it deployed as quickly as 
possible? 

1 have been consistent in my statements that because the U.S. has enormous coal 
reserves, and because other countries will continue to rely on coal for electricity, we are 
aggressively moving CCS technology towards widespread commercial deployment. 

4. Mr. Secretary, earlier this year you killed funding for hydrogen-fueled vehicles, 
saying in an article the technology needs four "miracles" before it can become 
widely adopted, but "saints only need three." The Congress has voted to restore 
most of the funding in appropriations bills we are sending to the President. 

a. Will you advise the President not to sign the Department's appropriations bill 
given that the hydrogen car program has been restored? 

b. Given the relative uncertainty of our low-carbon technology options in the face 
of sharp C02 cuts in a bill like this, don't you think that all technologies should be 
given a chance to succeed? Are you in the business of picking energy winners and 
losers? 

I have consistently stated that we need a portfolio approach to developing and deploying 
low-carbon energy technologies. 

5. On October 20, you said that the U.S. should enact C02 limits without a border 
tariff, saying that it "does no one good." I do not disagree with you, but realize also 
that this still leaves us the problem of international competitiveness to deal with. If 
we enact this bill and nobody else does, we are making our industrial manufacturing 
more expensive in the U.S. and giving manufacturers in China, India and others an 
advantage. What do you propose in the alternative to a border tariff? 

1 believe there are a number of approaches that can be used to address legitimate 
concerns about competitiveness impacts on energy-intensive, trade-exposed industries 
and the carbon leakage that could result as a consequence. The Administration believes 
that the most effective approach to address concerns with carbon leakage and 
competitiveness is to negotiate a new international climate change agreement that ensures 
that all the major emitters take significant actions to reduce their greenhouse gas 
emissions. To complement this effort, we have pursued actions in other international for 
a to ensure a level playing field that can maximize the environmental benefits of our 
policies without risking competitiveness and leakage problems, including the G20 
initiative spearheaded by the President to phase-out fossil fuel subsidies and our joint 
proposal with Canada and Mexico to phase-down emissions of HFCs, a potent 
greenhouse gas, in developed and developing countries under the Montreal Protocol. The 
Administration will weigh various options in the context of our international 
commitments, as well as our domestic policy goals. I would also note that China and 
other countries are investing heavily in clean energy technologies. We are already falling 
behind in technologies that we pioneered. The greatest risk we face is from skipping the 
clean energy race, not from joining it. 



161 


Senator John Barrasso 

1) You recently announced a goal for deployment of carbon capture and 
sequestration technology in 8 to 10 years. You also said that coal is likely to be a 
major and growing source of electricity generation for the foreseeable future. I 
agree that coal will be an integral part of our energy future. We cannot turn our 
backs on coal. Coal is affordable, abundant, and reliable. America has the tools and 
the brains to make carbon sequestration a reality. Unfortunately, there is little 
discussion about the legal framework for long-term carbon storage. 

Do you think carbon capture and sequestration can become a reality without first 
putting the legal framework in place? 

Will companies proceed with long-term storage without certainty regarding liability 
or who owns the pore space? 

Do you think building the legal infrastructure for long-term carbon storage should 
be a part of legislation aimed at reducing greenhouse emissions? 

I agree that having a legal framework in place is a critical component of rapid 
development and deployment of CCS technology. In July, 2008, EPA proposed a rule to 
regulate the injection of C02 into geological formations. EPA has proposed this rule 
under the authority of the Safe Drinking Water Act’s Underground Injection Control 
Program. DOE has been working very closely with EPA in the development of this rule. 
The final rule is currently expected next year. Several states also have passed or have 
pending legislation to address C02 injection into geological formations. 1 do not have a 
view at this time as to whether additional legislation is required, though I would be glad 
to work with you to explore this issue further. 



162 


Senator Lamar Alexander 

You have been very supportive of nuclear power and made recent statements that 
we should increase loan guarantee levels and that we need to be building nuclear 
power. 

1. You say that a utility' might consider wind or solar in building new capacity. 
Under current technologies, can wind or solar provide reliable base-load day-in, 
day-out power to utilities? 

1 believe that we will need a mix of power sources, including both renewables and 
traditional sources like nuclear. The extent to which renewables can provide base-load 
power depends in large part on energy storage technologies, and we should certainly use 
renewable energy to meet peak loads when it is economical to do so. We have some 
viable energy storage solutions today, and 1 am optimistic that we will develop even 
better ones in the coming years. 

2. You say in your testimony that EIA found, globally, the cumulative investment in 
wind turbines and solar photovoltaic panels from now through 2030 could be $2.1 
trillion and $1.5 trillion. Was there a comparable figure for nuclear and coal with 
carbon capture? 

1 do not have comparable estimates for the size of these other markets, though 1 believe 
that they will also be substantial markets that offer major economic opportunities for the 
United States. 

3. What do you think is holding back industry from building new nuclear reactors? 
How would you propose to address such barriers? 

One barrier is financing, and we are working to address that now by moving to make 
conditional awards using the $18.5 billion of nuclear loan guarantee authority that DOE 
already has. 

4. What does S. 1733, the Kerry-Boxer bill do to expand the deployment of nuclear 
power? 

This bill sets carbon emissions targets that ratchet down over time, which will favor 
nuclear and other low-carbon energy technologies. Indeed, EIA and EPA analyses of cap- 
and-trade proposals have predicted a significant expansion of nuclear power under cap- 
and-trade proposals similar to Kerry-Boxer. 

5. Do you think American nuclear power plants are safe? 

Yes, our nuclear plants generally have excellent safety records. However, I believe that 
safety must continue to be at the top of the list for industry and the NRC alike as we 
move to restart the nuclear industry in the United States. 

6. Can we store used nuclear fuel safely for 40, 60, or even 80 years? 



163 


The NRC has said that we can safely store spent nuclear fuel in dry casks over these time 
frames, and I agree with this assessment. 

7. Do you believe we are likely to find a way, with the next 10 or 20 years, to recycle 
used nuclear fuel that: 

a. doesn't isolate plutonium? 

b. we can end up with a waste that's not dangerous for more than 300 years? 

c. limits the volume of waste to 10%, 5%, or even 3% of its current volume? 

I am hesitant to provide specific benchmarks. However, DOE’s current program includes 
research on advanced, proliferation-resistant nuclear fuel cycle and waste management 
technologies that can minimize wastes, and research and development of advanced 
reactor systems that could provide improved economic performance, safety, and 
proliferation-resistance. I look forward to the Blue Ribbon Commission’s 
recommendations on this and other issues regarding storage, reprocessing and disposal of 
spent nuclear fuel. 

8. Is isolating plutonium the most likely root of nuclear proliferation or is it more 
likely that North Korea will produce its own enriched uranium? 

There are a range of nuclear proliferation risks. Whether enrichment or reprocessing 
presents the greater proliferation risk depends on the technology paths available to any 
potential proliferating nation. However, with respect to today’s technologies for 
reprocessing spent nuclear fuel, separation of plutonium is only one drawback. These 
technologies are also uneconomic and do not sufficiently address the waste problem. For 
these reasons, we continue to pursue R & D on more promising technologies. 


9. Secretary Chu, in your testimony you said, "The only question is which countries 
will invent, manufacture and export these clean technologies and which countries 
will become dependent on foreign products?" 

a. Is it possible that nuclear power is another technology where we might become 
dependent on foreign innovation, technology, and products? Is there anything we 
might do to regain our lead? 

I agree that nuclear power offers a great opportunity for the U.S. and nuclear will need to 
be part of our energy mix. DOE is working hard to finalize and make conditional loan 
guarantee awards. 1 remain hopeful that the first conditional awards will be made in 
coming months. In addition, DOE’s current research and development program 
includes work on advanced reactor systems that could provide improved economic 
performance, safety, and proliferation-resistance. 

10. In recent weeks you have been quoted as saying we should double loan 
guarantees for nuclear power to build an additional 4-5 plants. Do you believe it 
would be a good idea to increase loan guarantees for all carbon free electricity? 



164 


As I have noted, the $1 8.5 billion in nuclear loan authority currently available to the DOE 
will enable the Department to guarantee loans for 3-4 projects in the pipeline to build 
new reactors. I remain hopeful that the first conditional awards will be made in the 
coming months. 

11. Current proposals in the House and Senate would require a "Renewable 
Electricity Standard" that up to 20% of our electricity to come from a narrowly 
defined list of sources - mostly wind and solar. Shouldn't our goal be to encourage 
any carbon free production of electricity rather than picking specific technologies to 
achieve that goal? Why not, instead, propose a "Carbon-Free" or "Reduced 
Carbon" Electricity' Standard? 

I believe that nuclear power must continue to be a part of our energy mix, and that the 
clean energy and climate bill passed by the Senate should reflect and contribute to 
achieving that goal. 1 would be pleased to work with you to further develop this 
legislation. 



165 


Senator Boxer. Thank you very much. 

The Honorable Ray LaHood, Secretary, U.S. Department of 
Transportation. 

STATEMENT OF HON. RAY LAHOOD, SECRETARY, 

U.S. DEPARTMENT OF TRANSPORTATION 

Mr. LaHood. Chairman Boxer, Ranking Member Inhofe and 
members of the committee, thank you for inviting me to discuss the 
Clean Energy Jobs and American Power Act. I appreciate the chal- 
lenge you and your colleagues have undertaken in this important 
bill. 

President Obama’s Administration and the Department of Trans- 
portation believe that making the transition to a clean energy envi- 
ronment and combating climate change are major priorities, and 
the time to act is now. We also understand that transportation con- 
tributes to and is affected by climate change, and therefore our 
transportation policy must be a part of the solution. 

To that end, transportation will play a vital role in helping to re- 
duce greenhouse gas emissions, decrease our reliance on oil, create 
more livable, sustainable communities and generate green jobs. Let 
me review some of the actions already underway. 

In recent months, DOT has teamed up with the Department of 
Housing and Urban Development and the Environmental Protec- 
tion Agency to better direct Federal investments in transportation, 
housing, improved air quality and water infrastructure across the 
country. Our agencies support coordinated infrastructure invest- 
ments and economic development as a means of creating more liv- 
able neighborhoods while residents in urban, suburban or rural 
communities can get to work, school, the doctor or the grocery store 
without having to get into an automobile. 

We know that in the U.S., shifting just 10 percent of its new 
housing starts to livable communities over the next decade, Ameri- 
cans would save nearly 5 billion gallons of gasoline. And people 
who live in walkable communities served by transit have a much 
smaller carbon footprint than those in car dependent communities 
and spend less on transportation as well. 

To move this agenda forward, our agencies would like to partner 
with Congress to align our programs to ensure Federal spending is 
effectively leveraged with other public and private investments. We 
are consulting on performance measures that could be used to de- 
termine outcomes, and we are developing an affordable index and 
other tools to help achieve our goals. We are also providing joint 
technical assistance through EPA to communities interested in co- 
ordinating these types of investments right now. And we are col- 
laborating on implementing sustainable community grants through 
HUD, if they are funded in the 2010 appropriations bill. 

Through the American Recovery and Reinvestment Act, DOT is 
making significant investments in transportation-related projects 
that reflect our livable and sustainable priorities. Liveability for in- 
stance, is given significant weight as part of the $1.5 billion TIGER 
grants, and applications are currently under review. As you know, 
we are also investing $8 billion for high speed rail corridors and 
other inter-city rail passenger service. The Federal Railroad Ad- 
ministration’s long-term plans seek to build upon this initial in- 



166 


vestment with a national network of passenger rail corridors that 
improve mobility, service, convenience, safety and efficiency, all of 
which contribute to developing livable, sustainable communities. 

In pursuit of our climate change goals, we are planning to work 
with EPA to develop and implement fuel economy and greenhouse 
gas emissions standards for medium and heavy trucks. This follows 
our successful collaboration to propose harmonized national fuel 
economy and emissions standards for light duty vehicles and 
trucks. We are greatly encouraged by our ability to work together 
to achieve the best possible regulations without imposing undue 
hardships on industry. We believe this intergovernmental approach 
can serve as a model for future Government action in this area. 

We look forward to working with Congress to support robust 
transportation planning techniques and target investments toward 
projects that reduce emissions and fuel consumption. We under- 
stand that State DOTs and metropolitan planning organizations 
will need new tools, technical assistance, capacity building and re- 
sources to determine which investments generate the best out- 
comes. 

There are many, many other promising initiatives underway 
throughout DOT, too numerous to discuss. I will mention just a 
few. The Federal Highway Administration is developing cost effec- 
tive strategies and performance measures to determine progress in 
reducing emissions. The Federal Aviation Administration is con- 
ducting research to improve our scientific understanding of the im- 
pact of aviation emissions on climate and working with domestic 
and international stakeholders to develop appropriate strategies to 
develop a global impact of climate change. 

And finally, the Federal Transit Administration is working to ex- 
pand access to public transportation, support transit-oriented de- 
velopment and conduct research to help public transportation agen- 
cies operate more efficiently. 

We are delighted to be here, and we look forward to your ques- 
tions. 

[The prepared statement of Mr. LaHood follows:] 



STATEMENT OF 

THE HONORABLE RAY LAHOOD 
SECRETARY OF TRANSPORTATION 

BEFORE THE 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 
U.S. SENATE 

HEARING ON 

CLEAN ENERGY JOBS AND AMERICAN POWER ACT OF 2009 
OCTOBER 27, 2009 

Chairwoman Boxer, Ranking Minority Member Inhofe, and Members of the Committee: 

Thank you for the opportunity to discuss the Clean Energy Jobs and American Power 
Act. I congratulate you on the difficult work you and your colleagues have undertaken 
on this bill and your efforts to improve America’s economic competitiveness and 
prosperity, reduce the Nation’s impact on climate change, and ensure America’s energy 
security. 

Transportation will play a key role in achieving clean energy and climate objectives. I 
look forward to continued discussions to ensure that comprehensive legislation is passed 
that advances our clean energy goals, protects our environment for this and future 
generations, and ensure economic prosperity for all Americans. 

The Obama Administration and the Department of Transportation (DOT) consider 
transition to a clean energy environment and combating climate change a major priority, 
and the time to act is now. We are committed to generating green jobs, decreasing our 
reliance on oil, reducing pollution, and creating more livable, sustainable communities. 
And we are already taking aggressive steps to act on these priorities. For instance, the 
Administration — with the full support and involvement of DOT — is dramatically 
improving the fuel economy of automobiles, intensifying energy efficiency and 
renewable energy efforts through the American Reinvestment and Recovery Act of 2009 
(Recovery Act), and working through interagency partnerships to build livable and less 
energy intensive communities. 

Transportation both contributes to and is affected by climate change, and I am committed 
to ensuring that transportation is part of the solution. The Department is focused on 
substantially reducing transportation’s contributions to greenhouse gas (GHG) emissions 
and adapting to potential impacts on transportation infrastructure. This work includes 
improving vehicle fuel economy, developing alternative fuels, improving system 
efficiency and encouraging more sustainable transportation choices, as well as 
understanding climate impacts and protecting transportation infrastructure. And we are 
working with other Federal agencies, as well as State and local governments and our 
transportation stakeholders, to accomplish this critical work. 



168 


Because this committee has jurisdiction over both the climate change legislation and 
surface transportation reauthorization, you will be at the forefront of ensuring that 
comprehensive climate legislation works in concert with Federal transportation policies 
and investments. I look forward to working with you on this effort. 

We recognize that government leadership at all levels will be needed to transform our 
transportation system into one that allows Americans to get to work, school, the doctor, 
the grocery store, or the park without being required to get into a car. To achieve this 
goal, we will need the most effective tools and strategies possible. 

We have much more to do, but we are not waiting to begin taking aggressive and 
meaningful actions. I am particularly pleased with one of our efforts. In recent months, 
DOT has been working with the Department of Housing and Urban Development (HUD) 
and the Environmental Protection Agency (EPA) in an interagency partnership for 
sustainable communities to develop Federal policies that could help support and shape 
State and local land use decisions and infrastructure investments to develop livable 
communities where people have the option to drive less. The promise is that this 
approach might lower the climate impact from the transportation sector, while also saving 
American families money and increasing their mobility. Currently, American adults 
travel a total of 25 million miles a day in trips of a half-mile or less and nearly 60 percent 
of these are motor vehicle trips. DOT, HUD, and EPA are working together to support 
the building of more livable neighborhoods with “complete” streets that increase safety 
and mobility for all users by giving Americans -whether they live in urban, suburban or 
rural communities-the choice of walking, biking, or riding transit instead of driving 
motor vehicles. If the presence of these alternatives promotes less driving, then that will 
reduce road congestion, reduce pollutants and greenhouse gases, and use land more 
efficiently. 

Reducing GHG emissions may be achieved through changing local transportation and 
land use patterns. For instance, assuming that more travel options and supporting land 
use would reduce vehicle miles traveled, an EPA analysis found that shifting 10 percent 
of new housing starts to livable communities over the next 10 years would save 
Americans roughly 4.95 billion gallons of gasoline. Minneapolis-St. Paul is a good 
example of the benefits of adopting livability strategies. More walkable and bikeable 
neighborhoods in the area have the potential to deliver estimated GHG savings from 
walking and biking equal to the benefits from a shift of 12 percent of vehicles to hybrids. 
The recently released Moving Cooler study, funded by a number of diverse stakeholders, 
also recognizes the substantial environmental and energy benefits resulting from livable 
communities. It found that compact development, complemented with pricing strategies 
and support for alternative transportation modes, could reduce CO 2 emissions by up to 15 
percent by 2050. These studies suggest that promoting mixed-use, connected 
communities has the potential to reduce vehicle miles traveled, and thereby significantly 
contribute to U.S. carbon dioxide emissions reductions. 

DOT, HUD, and EPA are identifying ways to align our agencies’ programs to ensure that 
our spending is effective and leveraged with other public and private investment. We are 


2 



169 


consulting with each other on performance measures that will be used to determine the 
results we can expect from these efforts. We are jointly identifying Federal barriers that 
impede performance of our programs and will seek to have them removed. We are 
providing joint technical assistance through EPA’s Smart Growth Implementation 
Assistance Program competition and will collaborate on the implementation of HUD’s 
Sustainable Communities Grants if they are funded in the FY 2010 Appropriations bill. 
We are also working to enhance the skills of transportation and housing planners, and to 
develop tools such as an affordability index. 

DOT has worked to ensure that livability and sustainability objectives are given 
significant weight in the new discretionary spending of the Department as part of the 
Recovery Act. The Transportation Investment Generating Economic Recovery (TIGER) 
team is currently in the process of awarding $1.5 billion worth of competitive grants for 
State and local governments for projects with significant long-term impact for the nation, 
metropolitan area, or region. Criteria for selection include the project’s contribution to 
sustainability and livability. 

Additionally, the Recovery Act provided $8.4 billion for transit to support projects in bus 
and rail car manufacturing, operation and maintenance, fixed guideway improvements, 
and work that supports the operation of high efficiency buses, among other sustainable 
transit needs. Selections have been made for $100 million in discretionary grants through 
the Transit Investments for Greenhouse Gas and Energy Reduction (TIGGER) program 
with livability and sustainability goals included as project funding criteria. 

The Recovery Act also provides $8 billion for high-speed rail corridors and other 
intercity passenger rail services. The high-speed rail initiative developed by the Federal 
Railroad Administration seeks to fund a long term program to plan and build a national 
network of passenger rail corridors. Preferred projects will improve mobility, options, 
service, convenience, safety, and efficiency, and contribute to economic recovery and 
development, as well as support environmental equality and livable communities. 

Through the Clean Energy Jobs and American Power Act, Congress can help to foster 
partnerships, encourage cross agency collaboration, and better ensure that livability is 
institutionalized as a part of transportation decision making. 

We also look forward to partnering with EPA, as our agencies work to develop and 
implement fuel economy and GFIG emission standards for medium and heavy trucks. 
DOT and EPA each have expertise in developing harmonized standards that recognize 
the dual objectives of reducing consumption of fossil fuels and GHG emissions. DOT 
and EPA each bring unique expertise that, through collaboration, is likely to result in 
more rigorous yet achievable standards. And our recent cooperation in proposing 
harmonized national fuel economy and GFIG emission standards for light-duty vehicles 
and trucks is an example of how the two agencies can successfully coordinate to deliver 
substantial fuel economy and environmental benefits. Such collaboration can contribute 
to produce the best possible regulation of mobile sources without imposing undue or 
conflicting burdens on industry. 


3 



Our past success argues for continued cooperation. On May 19, 2009, President Obama 
announced a historic national policy to reduce GHG emissions and improve fuel 
economy for all new cars and light duty trucks sold in the U.S. On September 15, DOT 
and EPA announced a joint proposed rulemaking that would set fuel economy and 
tailpipe carbon dioxide emissions standards for passenger cars, light-duty trucks, and 
medium-duty passenger vehicles, covering model years 2012 through 2016, The 
standards, taken together, would deliver a fleetwide fuel economy standard of 35.5 miles 
per gallon by 2016. According to EPA's preliminary analysis, the standards, if finalized, 
are projected to reduce GHGs by approximately 950 million metric tons and save 1.8 
billion barrels of oil over the life of the program. The program would reduce GHG 
emissions from the U.S. light-duty fleet by 19 percent by 2030. 

Another way to achieve our clean energy and climate goals is through more effective 
transportation planning. We would like to work with Congress to support robust 
transportation planning techniques to target investments to projects that reduce GHG 
emissions and fuel consumption. One strategy for reducing transportation-related GHG 
emissions is by integrating transportation planning with housing, land use and water 
infrastructure planning. As new or additional development is contemplated, considering 
where people will be located, where they will need to go, and how they should be able to 
get there, can promote better efficiencies, system performance and lower carbon 
emissions. 

DOT’s experience and statutory jurisdiction to implement transportation planning 
regulations lends itself well to accomplish the transportation planning goals contemplated 
in the bill. A key mechanism by which DOT can have an impact on climate change is 
through our role in financing infrastructure and promoting effective transportation 
planning across the United States, including highways, airports, transit systems, and 
multi-modal facilities. We have a unique opportunity to shape the transportation 
infrastructure of the future to promote livability and to reduce the environmental impact 
of transportation. 

State DOTs and metropolitan planning organizations (MPOs) have limited experience 
with the kind of planning promoted in this legislation. Consequently, we need to make 
sure the program does not become unnecessarily complex and does provide the most 
efficient and effective route to reduce emissions. DOT, along with our partners at HUD 
and EPA, are excited to work with Congress to find the best way to invest infrastructure 
dollars to decrease GHG emissions and increase mobility and economic vitality - three 
areas that are inexorably linked. 

The Department is already taking a number of other steps to address transportation- 
related GHG emissions. 

DOT’S Center for Climate Change and Environmental Forecasting sets priorities for 
climate change policy analysis and research. One example of the Center's work is The 
Impacts of Climate Variability and Change on Transportation Systems and 



171 


Infrastructure. This case study of the Gulf Coast was designed to understand and address 
the possible effects of climate change on transportation infrastructure and aid 
transportation decision makers in determining how to account for potential impacts in the 
transportation planning process. Phase I of the study was completed in 2008 and studied 
how changes in climate over the next 50 to 100 years could affect transportation systems 
in the U.S. central Gulf Coast region. Phase II, which was just launched, will explore 
more detailed information about impacts at the local level. Phase II will be completed in 
about three years, and will develop guides for transportation planners, including a risk 
assessment tool to allow decision makers to understand vulnerability to climate change. 
This important work has already gained considerable interest within the transportation 
community about planning for transportation investments. 

The Center is overseeing preparation of a report to Congress on the impact of the 
Nation’s transportation system on climate change, and solutions to mitigate climate 
change by reducing GHG emissions from the transportation sector. The report, mandated 
by the Energy Independence and Security Act of 2007, will identify national policy 
approaches, evaluate pros and cons, and estimate magnitudes of emission reductions. 

This research will allow DOT to evaluate the implications of various approaches on other 
transportation goals. The report results will compare strategic options to reduce 
transportation emissions and will inform future research and policy development. 

The Center’s Transportation and Climate Clearinghouse was launched in early 2009 and 
includes information on GHG inventories, analytic methods and tools, GHG reduction 
strategies, potential impacts of climate change on transportation infrastructure, and 
approaches for integrating climate change considerations into transportation decision 
making. 

Additional efforts are underway throughout DOT’S operating administrations. The 
Federal Highway Administration (FHWA) climate efforts include mitigation and 
adaptation work on improvements to system efficiency, land use, and planning. FHWA 
is working to evaluate how land use, transportation infrastructure, and policy changes 
would affect travel activity and GHG emissions. FHWA is also working to develop cost- 
effective strategies and performance for measuring progress in reducing emissions. 
FHWA is working with State DOTs and MPOs around the country to address climate 
change in transportation planning decisions. 

FHWA is also developing a strategy to address climate adaptation issues, and a draft 
framework for conducting risk-based assessments and transportation infrastructure. 
Guidelines will be developed for consideration of climate change impacts and adaptation 
in project development and environmental review under the National Environmental 
Policy Act. 

In addition, FHWA has several programs underway to enhance system efficiency by 
developing and implementing innovative solutions to reduce traffic congestion and its 
effects on the environment, including: enhanced design and implementation of work 
zones; quicker response to traffic incidents; improved timing of traffic signals and other 


5 



172 


traffic management strategies; provision of information to allow travelers to make 
informed decisions en route, mode and timing of trips; highway design improvements to 
remove bottlenecks; and better balancing of supply and demand through congestion 
pricing where appropriate. 

The Federal Aviation Administration (FAA) leads the transformation to the Next 
Generation Air Transportation System (NextGen). One key NextGen environmental goal 
is to limit or reduce the impact of aviation GHG emissions on the global climate. To 
achieve this, a key approach is to more efficiently use the Nation’s airspace, which will 
lead to less fuel use and therefore have a positive GHG and air quality impact. In an 
effort to reduce fuel bum and other emissions, FAA is developing and improving 
environmentally friendly procedures covering gate-to-gate, terminal, and surface 
operations. 

FAA is leading work to improve scientific understanding of the impacts of aviation 
emissions on climate. With participation from the National Aeronautics and Space 
Administration, the National Oceanic and Atmospheric Administration, and EPA, FAA 
launched the Aviation Climate Change Research Initiative (ACCRI) to accelerate 
scientific understanding that will inform policy decisions on mitigation. FAA also 
launched the Continuous Lower Energy Emissions and Noise Program (CLEEN) to 
advance maturing engine and aircraft technologies for quick deployment into the fleet in 
order to increase fuel efficiency and reduce emissions. FAA helped form — and is an 
active participant in — the Commercial Aviation Alternative Fuels Initiative (CAAFI). 
CAAFI is a broad public-private collaboration that seeks to develop and deploy 
alternative jet fuels for commercial aviation which offer reductions in life cycle 
emissions. 

In addition, FAA is conducting research to inform Administration decisions about 
potential impacts on domestic and international aviation of possible policies and their 
impacts on the climate change. These policies include aircraft carbon emissions 
standards, emissions cap and trade, and carbon taxes on aviation emissions. 

The unique nature of the aviation sector means that its environmental impacts are not 
only domestic, but international in scope. To that end, the FAA has also been working 
with other Federal agencies, including EPA and the Department of State, within the 
context of ongoing negotiations in the International Civil Aviation Organization to 
develop a global framework to mitigate aviation’s impact on climate change. 

The Federal Transit Administration’s (FT A) work on climate change falls into two main 
areas: (1) catalyzing expanded public transportation service and transit-oriented 
development to reduce overall transportation emissions while providing convenient and 
economic mobility options; and (2) technology research and deployment that will enable 
local public transportation agencies to provide their already relatively energy efficient 
service in an even more efficient manner. 

FTA’s grants, technical assistance, research, and policy leadership all play a role in the 
agency’s efforts to address climate change. FTA funds public transportation through the 


6 



agency’s grant programs, FTA also provides technical assistance in planning and transit- 
oriented development. Combining investment in public transportation with compact, 
mixed-use development around transit stations creates synergies that amplify the 
greenhouse gas reductions of each strategy and enhance overall livability and 
sustainability goals of the Department. FTA’s research on alternative fuels and high 
efficiency vehicles has yielded the introduction of hybrid-electric buses, hydrogen fuel 
cell buses, and other low emissions technologies. Transit vehicles make ideal 
demonstration vehicles because of their high visibility and centralized maintenance. 

FTA is funding a new synthesis on GHG emission savings from transit through the 
Transit Cooperative Research Program. FTA is developing a handbook for transit agency 
managers of low carbon practices and also offers environmental management systems 
(EMS) training. FTA also has sustainability partnership projects with the American 
Public Transportation Association and the Association of Metropolitan Planning 
Organizations. 

The Research and Innovative Technology Administration (RITA) coordinates the 
majority of the Department’s surface transportation research on alternative fuels, 
alternative vehicles, hydrogen fuels and fuel cells, and advanced vehicle technology, all 
of which address climate change concerns. RITA also works on multiple research 
projects regarding hydrogen, including finding safe and effective storage materials, 
testing hydrogen fuel cell vehicles, and training emergency responders on hazardous 
characteristics of hydrogen. 

DOT, in partnership with EPA, will analyze ways to reduce transportation-related GHG 
emissions while continuing to support efforts to attain air quality and water quality 
standards, learn more about harm from air toxics related to transportation, and maintain 
noise reductions. Our climate change research will help us identify the potential co- 
benefits of mitigation strategies, such as reductions in criteria air pollutants, as well as 
potential unintended consequences of mitigation strategies, such as increased risks to 
public health. 

DOT is fully committed to reducing energy consumption and greenhouse gas emissions 
from across the transportation sector. DOT will continue to work with the White House 
Office on Energy and Climate Change Policy, the other Federal agencies, State and local 
governments, and the transportation community to identify and pursue the most critical 
climate change priorities. 

DOT is also committed to working with Congress to ensure the passage of 
comprehensive clean energy and climate change legislation that provides the most 
valuable tools to achieve the most effective emissions reductions while supporting 
economic growth and prosperity. 

In closing, I applaud your efforts to further the debate and move us much closer to 
comprehensive and effective solutions. Thank you, and I look forward to answering your 
questions. 



174 


Environmental and Public Works Committee Hearing 
October 27, 2009 

Follow-Up Questions for Written Submission 
Questions for Secretary LaHood 


Questions from: 

Senator James M. Inhofe 

1, Do you agree that the worker adjustment assistance provisions in Title 3, Part 2, 
sections 31 1 through 313 in Kerry-Boxer are needed because this bill will cost jobs? 

The Department of Transportation (DOT) is confident that the bill will create green jobs 
in the transportation sector in the effort to transition to a clean and sustainable 
transportation system. 


2. I understand new legislation usually entails new programs. But Sen. Webb 
compared the bureaucracy in Lieberman-Warner to “the old Soviet Union.” 
Lieberman-Warner was 344 pages. Kerry-Boxer is 923 pages. Waxman-Markey is 
1,400 pages. How would you describe the bureaucracy and mandates in this bill? 
And if this is a market-based approach, why is all of this necessary? 

The cap-and-trade provisions of the various comprehensive bills actually account for only 
a fraction of the content of the bills, and certainly only a fraction of the total pages. We 
look forward to working with Congress to implement comprehensive energy legislation 
that achieves its objectives at the minimum cost to the U.S. economy. 


3. Secretary LaHood, when you appeared before this Committee back in July, 1 
asked you to explain the contradiction between the Administration’s opposition to 
paying for a transportation bill by increasing the federal gas tax — a position I 
support, by the way — and the Administration’s support for a cap-and-trade 
proposal, which by design will increase the cost of gasoline. Estimates show the 
increase due to cap-and-trade to be at least 20 cents per gallon, effectively doubling 
the current federal gas tax. Many estimates show the increase to be even higher. 
Could you please explain this contradiction in the Obama Administration’s position 
on increasing consumer costs? 

Most of the climate bills before the Congress create mechanisms that cushion the impact 
of allowance prices on the American public. In any case, EPA’s analysis of the costs of 
the Waxman-Markey Bill, which EPA believes is broadly applicable to the Boxer-Kerry 
Bill as well, suggest that the cost per household in 2020 will be less than $0.50 per day. 


1 



175 


4. Your written testimony references the Moving Cooler report to argue that 
changing transportation and land use policies can reduce greenhouse gas emissions. 
According to that report, the IS percent reduction you cite would require enacting a 
growth boundary on all cities of more than 50 thousand people; taking local land 
use decisions away from local governments and giving them to Metropolitan 
Planning Organizations; requiring that at least 90 percent of new development be 
only multifamily homes or on lots of l/8 <h an acre; and increasing annual transit, 
bike and pedestrian spending by 500 percent. The pricing strategies your testimony 
refers to include increasing the gas tax to S2.7I a gallon — a fifteen hundred percent 
increase over the current 18 cents a gallon tax, adding a national Vehicle Miles 
Traveled tax on top of this higher gas tax, tolling the entire interstate, charging a fee 
to drive into the downtown areas of all metro areas of more than 50 thousand 
people, and charging a minimum of $200 a year to park in front of their own homes. 

a. Do you support any of these measures, including the ones seemingly endorsed in 
your written testimony? 

The Moving Cooler report analyzed an array of actions that can be taken to reduce 
greenhouse gas emissions from transportation. The analysis combined groups of actions 
that together might achieve significant reductions in emissions. The Moving Cooler 
“packages” of strategies could assist State and metropolitan transportation planners in 
evaluating which strategies might be most appropriate for a particular area or state, in 
cooperation with land use, housing and environmental planners. DOT testimony stated 
that Moving Cooler and other studies suggest that promoting mixed use, connected 
communities reduces vehicle travel and contribute to carbon dioxide reductions. The 
Department has not endorsed any particular package of strategies analyzed in the study or 
the predicted benefits. 

b. Are these the types of measures you would fund under the discretionary grant 
program included in the Kerry-Boxcr bill? 

The Department continues to review the Manager's Amendment and has not yet 
developed a position on each section of the recently released Manager’s Amendment. 

Our understanding of section 1 13 is that it could provide funds for developing and 
updating transportation GHG reduction targets and strategies. It could also fund 
implementation of those strategies included in statewide and metropolitan transportation 
plans that meet performance requirements and comply with other Federal laws. These 
planning efforts could consider the types of strategies described in section 1 12 of the 
Manager’s Amendment. Strategies for meeting transportation and environmental 
objectives through the transportation planning process could also be considered as the 
Administration works with Congress in reauthorizing Federal surface transportation 
programs. 


2 



176 


5. This bill would require all States and all metropolitan planning organizations 
(MPOs) serving transportation management areas to use scenario analysis when 
formulating transportation plans. 

a. What percentage of States and covered MPOs currently use scenario analysis as 
defined in the Kerry-Boxer bill? 

The Federal Highway Administration (FHWA) estimates that approximately 10 percent 
of MPOs, as defined in the Kerry-Boxer Bill, currently use scenario analysis. However, 
the majority of scenario analysis to date has not been focused on reducing greenhouse gas 
emissions. 

b. How much money would it take for an individual State or MPO to make the 
switch to such a scenario analysis? 

The cost of a scenario analysis depends on the level of sophistication of the analysis. 
FHWA estimates that the low end of the range could be approximately $50,000. The use 
of more sophisticated software and tools, along with the assistance of a consultant, could 
cost from $60,000 to $ 1 00,000. 


c. How long would it take for a State or MPO to make the change to using scenario 
analysis? 

This is dependent on the current modeling capabilities of the MPO, whether it has in- 
house modeling expertise, and the accessibility of modeling consultants. 

6. Section 113 of the chairman’s mark establishes a discretionary grant program to 
be administered by the Secretary of Transportation. The language, however, is not 
consistent as to whether awards are to be made to implement transportation plans, 
the new requirements for greenhouse gas emissions targets and strategies, or 
individual projects. At which level of specificity would you anticipate awarding 
grants under this language? 

DOT will gladly work with the Senate to determine the best possible strategy to award 
grants under the bill’s language. We are proud of our experience with implementing the 
discretionary spending as part of the American Recovery and Reinvestment Act (ARRA). 
Our Transportation Investment Generation Economic Recovery Team (TIGER) is 
currently in the process of reviewing applications for $1.5 billion worth of competitive 
grants for state and local governments for projects with significant long-term impact for 
the nation, metropolitan area, or region. Sustainability and livability are infused into our 
selection process for these grants. While TIGER is focused on individual projects, we 
could utilize this experience to fit any discretionary grant program Congress decides to 
fund though this bill. 


3 



177 


7. The discretionary grant program in section 113 of the bill seems to allow, but 
does not require, DOT to use up to 10 percent of the funds made available to help 
metropolitan planning organizations meet the new planning requirements, but no 
money is set aside for States for planning purposes. Additionally, the remainder of 
the money seems to be geared towards grants for implementing, not developing, the 
new strategies. 

a. Do you agree with that reading of the bill? 

The language of the bill can be interpreted in this manner. 

b. Do you think it makes sense not to provide funding to States to comply with these 
new planning requirements? 

DOT continues to review the proposed legislation and currently does not have a position 
on these provisions of the bill. But we intend to work with Congress to ensure that 
adequate funding and resources are provided to accomplish the clean energy and climate 
change objectives embodied in the legislation. 

8. This language also states that “The Secretary shall have the discretion to 
designate the specific modal requirements that shall apply to a project,” (page 76). 
Does that mean that you could choose to provide grants only to certain modes of 
transportation, regardless of the overall targets and strategies developed by the 
States and MPOs? 

DOT continues to review the proposed legislation and currently does not have a position 
as to how this language should or would be interpreted. However, we look forward to 
working with Congress to ensure that the clean energy and climate change objectives 
embodied in the legislation are achieved in the most cost-effective manner. 

9. During a recent briefing for my staff, staff from the Transportation Research 
Board indicated that there are major information gaps with respect to attempting to 
address climate goals through transportation planning. These gaps include not just 
insufficient models, but also a lack of knowledge about the assumptions and actual 
behavioral research to be used in models. 

a. In your opinion, does the Kerry-Boxer bill direct any funding to addressing these 
information gaps? 

The planning provision of the Kerry-Boxer bill provides support for addressing the 
information gaps with respect to addressing climate change. This could be an 
improvement over current planning funds provided to MPOs. 

b. If not, how would you plan to address these information gaps so that States and 
MPOs are not required to take action without having the tools necessary to make 
reasoned decisions? 


4 



178 


The Department has a Center for Climate Change that is pursuing research such as the 
impending report to Congress on the mitigation of greenhouse gases from the 
transportation sector. This report will help address some of the information gaps and thus 
help inform transportation planning. In addition, DOT will continue to identify 
information and modeling gaps that may inhibit solid and effective MPO planning and 
address them through cooperative efforts with appropriate Departments of the U.S. 
Government and internally as our resources allow. Planners have experience using the 
best available data to inform the public and decision makers, understand the uncertainties 
and risks, promote community discussion and make decisions. While climate change 
presents additional challenges due to the need for additional research, data and 
understanding, DOT will continue to provide the best available tools and technical 
assistance to DOTs and MPOs as they incorporate GHG reduction strategies into the 
long-range planning process. 


10. In the DOT’S planning for a response to the impacts of climate change, have you 
considered that spending funds to address this Country’s existing deteriorating 
infrastructure rather than on Climate Change? 

DOT recognizes the many pressing needs of the country's aging infrastructure including 
maintaining the existing infrastructure. At the same time, we expect that there will be 
impacts on transportation infrastructure - whether new or older - from climate change in 
the coming years, and we believe it is necessary to begin to plan for this scenario. 

a. How do you differentiate between climate change and those from weather 
variability? 

By working now to understand the state of repair of our current infrastructure and to 
understand the anticipated future impacts of climate change, we can help States and 
MPOs understand the types of changes to the infrastructure system needed to maintain 
our transportation networks into the future, regardless of whether the impacts are 
attributable to climate change or weather variability. Some of these changes may be 
included in routine or regularly scheduled infrastructure management activities; some 
may require entirely new efforts. 

1 1. I noticed you mentioned the GHG emissions savings making neighborhoods 
more walkable and bikcable, that is making more livable cities. What happens to 
freedom of choice, property rights subject restrictions on urban sprawl? Do you 
believe the public should be fully informed of the impacts and lifestyle changes 
associated with livability, sustainability and complex legislation like S.1733? 

We look forward to a full dialogue with the public on these issues. Our goal is for the 
public and local governments to make more informed decisions about investing in 
infrastructure. Ultimately we are confident that the public will enjoy the benefits of more 


5 



179 


walkable and bikeable neighborhoods, and we will be able to reduce energy consumption 
and pollution, 


6 



180 


Senator John Barrasso 

1. There are several proposals with new planning requirements that would compel 
states to reduce emissions. Wyoming is very rural in nature and there is only so 
much we can do to cost effectively promote walking, bicycling, and transit ridership. 

These proposals may be viable options in metropolitan areas, but due to our low 
population density, great distances, and harsh winters, they are not practical 
transportation options for rural states like ours. Wyoming generates very little 
emissions from transportation compared to other states. 

Would you be open to drafting an exemption for low population density states? 

Livability in rural areas is about access. Rural communities, especially those located in 
remote areas, face special challenges related to livability. Lack of access to necessities 
like medical facilities without use of a personal automobile can force seniors out of their 
homes or even an entire community. For example, past transportation policies resulted in 
the town centers of many rural communities being bypassed by the interstate highway 
system, contributing to the decline of once-vibrant business centers. Many rural 
communities close to urban areas are struggling with the loss of farm land and open space 
as a result of dispersed patterns of development from urban growth. Also, transportation 
costs are often significantly higher for residents of rural communities. We will 
specifically address rural communities and small towns in our any livability program. 

We are developing new, unprecedented approaches to incentivize the use of federal funds 
toward investments in existing infrastructure and existing communities that will benefit 
rural as well as urban communities. 


7 



181 


Senator Boxer. Thank you so much, Mr. Secretary. 

And now, Secretary Salazar, of the United States Department of 
the Interior. Welcome, Mr. Secretary. 

STATEMENT OF HON. KEN SALAZAR, SECRETARY, 

U.S. DEPARTMENT OF THE INTERIOR 

Mr. Salazar. Thank you very much, Chairman Boxer and Sen- 
ator Inhofe and the distinguished members and friends who are on 
this committee. 

This issue is an imperative issue of our time. President Obama 
has made it clear from day one that we will succeed on this effort. 
It is driven by the imperatives, many of which have come out here 
today. 

First, we need to get our country to a point of greater energy 
independence. Second, we need to create millions of new energy 
jobs here at home. And third, we need to make sure that we are 
protecting our children and our planet from the dangers of pollu- 
tion. That, frankly, is what this is all about. And I hear the con- 
versation and the presentations by the Senators, trying to address 
those issues. Our hope is that in fact, at the end of the day, as this 
U.S. Senate works its way, that there will be a way in which 
Democrats and Republicans can join in terms of getting a climate 
change and energy bill that will finally be one that this country can 
be very proud of. 

Let me say I am proud of my colleagues as well. We work to- 
gether as a team, as a team under the Obama administration help- 
ing us to forge a new energy future for our country. We have not 
let the absence of this legislation keep us from moving forward 
with a number of different initiatives. I want to speak briefly about 
some of the work that we are doing at Interior, because it ties into 
some of the work that this committee will be doing in the days and 
weeks ahead. 

First, at the Department of Interior, we see ourselves and our 
mission to be the stewards of America’s natural and cultural re- 
sources. We have an energy and climate change role as an energy 
supplier for this Nation in many ways. We are the carbon catchers 
of this country in terms of carbon sequestration, both biologically 
as well as geologically. We are also a primary agent of adaptation 
programs for this country based on the resources that we have. 
And we are a science provider, through the scientists we have at 
the U.S. Geological Survey, as well as the Fish and Wildlife Serv- 
ice. 

Let me very quickly just say a word about the assets that we 
have to fulfill these roles. The United States Fish and Wildlife 
Service oversees 550 wildlife refuges and 150 million acres of fish 
and wildlife refuges around the country. The Bureau of Land Man- 
agement, 253 million acres. The National Park Service, 84 million 
acres. Tribal lands, which we hold in trust for American native peo- 
ples, 56 million acres. And in the Outer Continental Shelf, and I 
know many of you are interested in that, we oversee 1.75 billion 
acres of the Outer Continental Shelf. 

We have educational assets that we bring to the table on the en- 
ergy and climate change agenda, because we have about 500 mil- 
lion people that will come to visit our icons, from the Statue of Lib- 



182 


erty to Yellowstone to the Everglades every year. And we have per- 
sonnel, some 70,000 people, which includes the scientists that are 
some of the premier scientists in America in the USGS and Fish 
and Wildlife. 

On the energy supplier side, Madam Chairman, the conventional 
fuels that we produce through the Department of Interior include 
approximately 30 percent of the oil for this country from our public 
lands and the submerged lands, about 30 percent of our natural 
gas and 40 percent of the coal that is used in this country. That 
is what we have been doing, and we continue to work on that agen- 
da. 

But exciting for all of us in the Department of Interior also is the 
new energy frontier. And from the beginning of this year, we have 
stood up the renewable energy world in the Department of the In- 
terior. We moved fast forward with solar energy where we have set 
aside 1,000 square miles for the development of solar energy. As 
Senator Sanders said earlier, our estimates are that the solar en- 
ergy potential just on those lands alone is about 100,000 
megawatts, which would power 29 million homes or provide about 
29 percent of the energy equivalent needed for the households of 
America today. 

We also are moving fast forward, because this is not pie in the 
sky; we don’t want to have people thinking about whether or not 
we can do it in 4 or 5 years. So we are fast tracking applications 
in Arizona and California and Nevada and New Mexico, where we 
hope to be able to permit by the end of next year 4,500 megawatts 
of solar power. The 4,500 megawatts is the equivalent of close to 
14 or 15 coal-fired power plants. 

But we are not stopping with the Sun. We are also doing every- 
thing we can to capture the power of the wind, both onshore as 
well as offshore. On the onshore, we hope on the same time line 
by the end of next year to have 800 megawatts of power stood up 
with respect to wind energy. And our belief and our estimates are 
that there is huge potential, especially in the Atlantic seaboard, be- 
cause the Governors in those States are very excited about what 
we can do with respect to offshore wind. 

We have great potential with hydro power, using existing facili- 
ties and not creating new dams, but using our facilities that we 
currently have and moving forward with the hydro renewable en- 
ergy agenda. Geothermal is big. Transmission, we are working to- 
gether as a Cabinet group to move forward with transmission. We 
are fast tracking transmission facilities in the West as well. 

Two quick points before my time runs out here. As a carbon 
catcher, I want this committee, who oversees the Fish and Wildlife 
Service, to recognize the great importance of what we can do in 
terms of our climate change and energy agenda. Through our ref- 
uges and through the facilities that we oversee along the Nation’s 
coastlines, national wildlife refuges alone and the National Park 
Service alone, we have 160 wildlife refuges and 74 national parks 
along the coastlines of America. And what we can do in terms of 
biological sequestration there is no different than what we are pro- 
posing in this bill to do in places like Brazil, Indonesia and other 
places. So the deforestation aspects of this legislation are some- 
thing also that we need to deal with here at home. 



183 


We are excited, and would be delighted at some point, Madam 
Chairman, to talk about the landscape conservation cooperatives, 
which we are moving forward with in the Department, that can 
help us essentially create carbon sinks within the United States of 
America. 

And finally, the USGS has moved fast forward with the creation 
of protocols for carbon sequestration for coal. We are excited about 
that agenda. 

And in conclusion, what I will say, we can do a lot on adaptation 
with water, with wildlife, with migration corridors, because we are 
really at the front line in terms of seeing the consequences of cli- 
mate change. And our science providers at USGS and U.S. Fish 
and Wildlife will be key to moving forward with this agenda. 

We at Interior and in the Obama administration, under Presi- 
dent Obama’s leadership, very much look forward to working with 
this committee on both sides of the aisle, as well as the rest of the 
U.S. Senate, to finally, once and for all, address the signature issue 
of our times, energy and climate change. 

[The prepared statement of Mr. Salazar follows:] 



184 


Statement of Ken Salazar 
Secretary of the Interior 
on 

S. 1733, 

The Clean Energy Jobs and American Power Act 
Committee on Environment and Public Works 
United States Senate 

October 27, 2009 

Chairman Boxer, Ranking Member Inhofe and Members of the Committee, I am pleased 
to appear before you today to discuss S. 1733, The Clean Energy Jobs and American 
Power Act, and the Department of the Interior’s role in building a new energy future. Let 
me first thank you for your time, interest, and leadership on the important issues of 
energy security and climate. 

The Administration supports enactment of comprehensive legislation that will make 
America more energy independent, create clean energy jobs here at home, and protect our 
children and planet from the dangers of pollution. Under President Obama’s leadership, 
the Department of the Interior is committed to helping our country build a comprehensive 
energy and climate change plan. 

Introduction 

The Department of the Interior serves as the steward of the nation’s resources, heritage, 
and cultures. 

We have jurisdiction over 20 percent of the land mass of the United States and 1.75 
billion acres of the Outer Continental Shelf (OCS). Interior-managed public lands and 
the Outer Continental Shelf account for nearly 30 percent of domestic natural gas 
production, over 30 percent of our oil production, and over 40 percent of our coal 
production. 

Through Interior’s Bureau of Reclamation we provide water to farmers, power to homes 
and businesses from hydroelectric facilities, and recreational opportunities to boaters, 
anglers, and others who love the outdoors. 

The Fish and Wildlife Service - also under Interior - manages over 550 wildlife refuges 
and other units of the Refuge System, encompassing more than 150 million acres of 
important wildlife habitat, shorelines, and wetlands. 

The National Park Service oversees our 391 National Parks, 84 million acres of treasured 
landscapes and historic places, and introduces 300 million visitors each year to the 
wonders and joys of America’s natural and cultural legacies. 


1 



185 


The Bureau of Land Management manages approximately 258 million acres of public 
lands, from the Arctic tundra and coastal forests to the vast mountains, deserts, and 
rangelands of the American West. These lands provide water resources, wildlife habitat, 
recreational opportunities, forest products, livestock forage, and mineral and energy 
resources. 

Moreover, the Department, through the Bureau of Indian Affairs, manages over 56 
million acres of tribal land and land owned by individual Indians. These lands, held in 
trust, are managed for farming, grazing, and energy production. Some of these lands are 
a rich source of conventional fossil fuels, and many have major renewable energy 
potential. 

The breadth of the Department’s responsibilities are perhaps most visible in Alaska, 
where we manage tens of millions of acres of public land, parks, and refuges. But the 
truth is, Interior has responsibilities in all 50 states, in insular areas, and with tribal 
nations. The resources we manage are economic engines for communities everywhere. 
As a nation, we must recognize how vital the wise stewardship of our landscapes is to our 
economic well-being. 

Creating Energy Independence 

But just as our landscapes and outdoor amenities create jobs and fuel local economies, 
the energy potential on our public lands offers great promise for a clean energy economy. 

E.very year, we spend hundreds of billions of dollars to import much of the oil we need to 
power our country. We have fallen behind the world in developing many of the energy 
technologies that will shape our economic future. The rising costs of the failed energy 
policies of the past have been unchecked for too long. As the President has said, there is 
a choice before us: we can remain the world’s leading importer of oil, or we can become 
the world’s leading exporter of clean energy technology. 

As part of our comprehensive energy strategy, the Department of the Interior is 
proceeding with oil, gas and coal development in a thoughtful, responsible way that 
allows for development and also protects the environment. We reject the notion that 
every piece of land or submerged lands should be explored or developed for oil and gas. 
But we embrace the reality that oil, gas, and coal are part of our energy portfolio. 

A comprehensive energy strategy cannot be limited to conventional energy sources alone. 
America, after all, has vast clean, renewable energy potential on our public lands. 

Interior oversees lands with great solar potential in the Southwest; wind potential in the 
Atlantic, on the Great Plains and in the West; and geothermal potential in the West. 

The great promise of these resources has led us at the Department of the Interior to 
change how we do business. In the last nine months, we have used existing authorities to 
launch a new renewable energy frontier for America that embraces environmentally 
responsible renewable energy projects on public lands. 


2 



186 


Since coming into office, we have prioritized the development of renewable energy on 
our public lands and our offshore waters. American business is responding. Companies 
are investing in solar facilities in the Southwest, wind farms off the Atlantic seacoast, and 
geothermal energy projects throughout the west. These new energy sources produce no 
greenhouse gases and, once installed, they harness abundant, renewable energy that 
nature itself provides. 

With regard to solar energy development, we have set aside 1,000 square miles of public 
lands in twenty-four “Solar Energy Study Areas” and are evaluating these for 
environmentally appropriate solar energy development across the West. These two dozen 
areas have the technical potential to generate nearly 1 00,000 megawatts of solar 
electricity, enough to power millions of American homes. We believe that of the solar 
projects currently proposed, more than 4,500 megawatts of new capacity - mostly in 
California, Arizona, and New Mexico - will be permitted for construction by the end of 
2010. If all of these projects came to fruition, they could potentially generate enough 
energy to power roughly 1 .4 million homes. 

In that same timeframe, we believe that more than 800 megawatts of new capacity will be 
available from wind energy projects currently proposed on BLM lands. If this capacity is 
realized, these projects could provide enough energy to power around 240,000 homes. 
According to a recent Department of Energy report, “20% Wind Energy by 2030,” it is 
feasible that wind could generate as much as 20 percent of the Nation’s electricity by 
2030. 

We are creating Renewable Energy Coordination Offices in our western states to help 
speed completion of reviews on the most ready-to-go solar, wind, geothermal, and 
biomass projects on public lands. 

We also recognize the continued value of hydropower. It is a low cost source of energy 
that emits a fraction of the greenhouse gases generated by fossil-based energy sources. It 
constitutes approximately 70 percent of the current total portfolio of renewable energy 
generation. The Bureau of Reclamation’s 58 hydroelectric power plants provide enough 
energy to meet the residential needs of 3.6 million households, the equivalent of 80 
million barrels of oil. Reclamation is the nation’s second largest hydropower producer. 
Reclamation is evaluating new capacity and efficiency increases at existing projects that 
could help realize undeveloped power potential. 

Interior’s vast land ownership also gives us an important role in siting the new 
transmission lines needed to build a transmission grid for the 21st Century and bring 
stranded domestic renewable energy assets to load centers and to American homes and 
businesses. Working with the Department of Energy, the Department of Agriculture, the 
Federal Energy Regulatory Commission, and the Council on Environmental Quality we 
are helping to develop a coordinated permitting process that can review and approve 
permit applications that cross federal agency jurisdictions, and we are also and mapping 
out electric transmission corridors that meet the needs of this new energy economy. We 


3 



187 


are also working to improve coordination on transmission with Indian tribes on their 
lands, which earn' great energy potential. 

Climate Impacts 

At the Department of the Interior, we recognize first hand that greenhouse gas emissions 
are affecting our climate. The change in climate is impacting water supplies for cities, 
towns, and farms; leading to more severe droughts, hurricanes, and floods; contributing 
to more intense forest fires; putting coastal communities at risk; and shifting wildlife 
habitat and migration patterns. 

Our land and wildlife managers are already confronting the impacts of climate change. 
Reduced snowpack - particularly in the Northwest and Mountain-West - is leading to 
decreased recharge of groundwater systems, increasing stress on public water systems 
and reducing river flows that impact temperature, depth, and other characteristics of 
spawning environments for fish. Our Arctic parks and refuges are seeing some of the 
earliest impacts of possible climate change - melting sea ice threatens marine mammals 
as well as coastal communities, while thawing permafrost can destabilize buildings, 
roads, and facilities and disrupt the structural basis of large regions of interior lands. 

The BLM is seeing increased desertification of public lands, the result of an increase in 
the frequency and duration of drought. Vegetation in some places has converted to more 
drought-hardy species and, in some instances, species numbers have been reduced or lost. 

Our scientists are also noting changes in abundance and distribution of species, including 
changes to migration patterns; the expansion of pests and invasive species; increased 
vulnerability to wildland fire and erosion; and an overall reduction in carrying capacity. 
Many of the iconic wildlife species that the Department manages from the Arctic to the 
Everglades will see their habitat threatened by global climate change. 

Other significant changes associated with increased warming include rising sea levels and 
water temperatures that pose threats to marine habitats, coastal wetlands, and estuaries 
which are part of more than 74 units of the National Park System and 160 National 
Wildlife Refuges managed along the Nation’s coastline. 

The Department’s 70,000 employees - with their scientific and land management 
expertise — are already documenting these impacts and developing systems to respond to 
them across the Nation. The development of successful adaptation and mitigation 
strategies that address the impacts of climate change will be critical to the health of the 
land, water, and wildlife resources we manage. 

The Department’s developing experience with adaptive management strategies for 
resource management can provide a template for future efforts. U.S. Geological Survey 
stream gages, for example, are showing snowpack declines and earlier annual peaks in 
river run-off in the Northwest and Mountain-West. As a result, land managers are 
analyzing potentially substantial changes in management requirements for fish and 
wildlife and water resources. 


4 



188 


Interior managers are also learning to be strategic in rebuilding facilities that are lost to 
natural disasters like Hurricanes Katrina and Rita. The Fish and Wildlife Service has 
repaired or replaced dozens of facilities at refuges along the coast damaged by these 
storms. In the process of rebuilding facilities across the region, the Service decided not 
to replace some facilities judged to be too vulnerable and relocated others to more secure 
locations. 

In all of these activities, the Department is putting a premium on integrating our dual 
science and land management roles. Scientists at the USGS, the Fish and Wildlife 
Service, Bureau of Reclamation, the Bureau of Land Management, and the National Park 
Service are working hand-in-glove with our land, wildlife, and water managers who are 
responsible for the more than 500 million acres of public lands and the water that the 
Department oversees. The focus is to ensure that our scientists are collecting and 
analyzing data that provide relevant scientific information about natural resource 
conditions, issues, and problems to decision-makers in the Department, at all levels of 
government, and to the general public. 

Realizing this vision is an interactive process, as our land, wildlife and water managers 
work with our scientists and help focus the nature of their research and analysis on the 
reality of on-the-ground changes. In this context, the information they provide - 
baseline natural resources scientific information, trends detection, modeling and 
forecasting, together with the effective dissemination of information and decision support 
tools - is key to understanding and addressing climate change and its effects. 

Given its scientific expertise, the Department also plays a role in the development of 
domestic carbon offset programs. For example, for the past 1 0 years the Fish and 
Wildlife Service has been working with partners in its Southeast Region to increase 
biological sequestration - through reforestation with native hardwoods - in refuges 
there. Under authority provided in the Energy Independence and Security Act of 2007, 
USGS is developing methodology to assess carbon sequestration and will use this 
methodology to conduct national assessments on geological and biological carbon 
sequestration. 

Conclusion 

Problems as complex as climate change and as large-scale as the development of a real 
new energy economy demand the coordinated efforts of the executive and legislative 
branches of our government and all the governments of the world. I look forward to 
working with you and the United States Senate as we move toward enactment of 
comprehensive legislation. The Department and its bureaus stand ready with our 
shoulder to the wheel to contribute our experiences, successes, and expertise to this 
effort. 

Thank you. I look forward to answering your questions. 


5 



189 


Environment and Public Works Committee Hearing 
October 27, 2009 

FoIlow>Up Questions Tor Secretary Salazar 
Senator James M. Inhofc 

1. The bill has over a dozen different programs and provisions relating to adaptation to 
climate change. Undoubtedly, the Department of Interior will be participating in, and 
even potentially implementing, those programs. I am already troubled by the 
inefficiencies created by litigation under the Endangered Species Act. Despite over 30 
years of effort, thousands of man-hours, and millions, perhaps billions, of direct and 
indirect costs, the U.S. Fish and Wildlife Service reports that only about 2% of ESA- 
listed species have been "delisted" - very few of those were delisted because the species 
actually recovered. Given that the Department still has a long way to go in 
implementing the most significant laws it currently manages, how will the agencies 
within the Department will be able handle such a tremendous new workload under 
this bill? 

Response: Addressing the observed impacts of climate change, several of which I noted 
in my testimony, is an ongoing activity at the Department stemming from our 
responsibility as stewards of our natural resources. As reported by the Intergovernmental 
Panel on Climate Change, “[adaptation will be necessary to address impacts resulting 
from the warming which is already unavoidable due to past emissions.” (Contribution of 
Working Group II to the Fourth Assessment Report of the IPCC, 2007.) I am committed 
to working within the Administration and with Congress to ensure that we have the 
necessary authority and funding to deal with the impacts to land, water, wildlife and 
people caused by climate change. 

2. Both you and Deputy Secretary Strickland have previously slated that you did NOT 
believe that laws like the Endangered Species Act should be used to regulate greenhouse 
gases. How will the provisions in S. 1733 affect whether the Department considers 
global warming when implementing and enforcing laws like the ESA? 

Response: Based on our initial review of the bill, it does not appear that S. 1733 will 
affect the Department of the Interior’s obligations and authorities to implement and 
enforce the Endangered Species Act (ESA). 

3. What do you envision the Department's role being in implementing programs 
aimed at helping species and resources adapt to climatic changes? Will the 
Department focus only on perceived impacts from manmade global warming or will 
you also consider ecological impacts from naturally-occurring changes in climate? 
Please elaborate on how you will deal with both man-made and naturally occurring 
climate impacts. 

Response: In order to fulfill our broad responsibilities with regard to the land, water, 
marine, fish and wildlife, tribal, and cultural resources for which the Department has 


I 



190 


stewardship and management responsibilities, the Department would consider all of the 
impacts to resources and species from changes in climate, regardless of whether the 
causes of climate change are natural, anthropogenic, or not determinable. 

4. You mention that DOl has been assisting with many renewable energy projects 
including wind, solar, and geothermal. How many of those projects did not receive 
any federal subsidy? For those projects that did receive federal subsidies, what was 
the amount and percent of total project costs for federal subsidy received for the 
average wind project? The average solar project? The average geothermal 
project? 

Response: It is important to understand the role of federal subsidies in promoting new 
energy technologies. A recent Environmental Law Institute report, titled “Estimating 
U.S. Government Subsidies to Energy Sources: 2002-2008", September 2009, may 
provide useful information. 

5. Environmentalists in West Virginia recently filed a law suit under the Endangered 
Species Act, claiming that the Wind Turbines could threaten the Indiana bat. In 
California's Mojave Desert, development of solar and wind facilities has been delayed 
due to concern over the region's tortoise population. Lawsuits and similar scenarios have 
pitted ESA duties against the importance of renewable energy, two goals that DOI shares. 
As DOI works to build transmission lines and increase these renewable sources of 
power, how will it balance the needs to reduce global warming with endangered 
species protection? 

Response: As we augment transmission infrastructure and increase energy production 
from renewable sources, the Department will carefully balance our energy needs with our 
responsibilities under the Endangered Species Act. In this regard, on October 29 lh the 
Administration announced a Memorandum of Understanding that relates to the permitting 
of new transmission lines. The agreement specifically recognizes the Department’s role 
in ensuring that siting of transmission lines is carried out in a way that protects our 
natural resources, and it contains specific provisions that relate to work under the 
National Environmental Policy Act and consultation under the Endangered Species Act. 

6. How does DOI plan to balance the needs of species adaptation and water with the 
needs of water users, such as food producers, agriculture and towns who depend on 
BLM water for their existence? 

Response: The Department is committed to processes that provide interested 
stakeholders the opportunity to comment on proposed Federal actions. In this manner, 
the needs of interested stakeholders will be appropriately considered. 

7. In your testimony you mentioned the "failed energy policies of the past" as noted that 
oil, gas, and coal are "part of our energy portfolio." According to E1A, fossil fuels 
account for 84% of the primary energy consumed in the United States and a recent report 
from Congressional Research Service found that the US endowment of recoverable oil 


2 



191 


was 167 billion barrels. This figure is considerably larger than the 21 billion often cited 
by a number of my colleagues across the aisle, and is the equivalent of replacing 
America’s current imports from OPEC countries for more than 75 years. 

A. Do you think, without damaging our economy or energy stability, we could 
successfully and quickly turn a great portion of that 84% to renewable low carbon 
energy sources? 

Response: Time and resources are essential elements of responsible and economical 
energy development, whether it is based on renewable or fossil fuel sources. While there 
is no quick fix to meeting our nation’s energy challenges, the Department of the Interior 
is committed to managing America’s public lands for balanced oil, natural gas, and coal 
development, and to facilitating environmentally responsible renewable energy projects 
that can help power President Obama’s vision for a clean energy future and greater 
energy independence. 

B. Considering the massive oil and natural gas reserves in the US, do you think that 
part of our "failed" past energy policies include not tapping further into these 
valuable resources? Would you be opposed to further exploration and utilization of 
these resources to help lessen our foreign oil dependency during what could be a 
slow transition to other energy sources? 

Response: Our Nation needs a balanced and comprehensive energy policy, which 
includes further exploration and development of domestic oil, coal, and natural gas. As 
we transition to a clean, renewable-based energy economy, oil, gas, and coal are and will 
continue to be a part of our energy mix. 

8. Has DOI worked with any organizations or researched on its own the possible 
effects of wind turbines on local climate and weather patterns? Has DOI done any 
studies or worked with any organizations to investigate how wind energy 
development impacts critical military radar systems, a concern of many of my 
colleagues along the eastern seaboard and throughout the country. 

Response: 1 am not aware of any specific research at the Department related to the 
impacts of turbines on weather patterns. In those instances where wind development 
takes place on lands or in waters under the Department’s jurisdiction and may have an 
impact on radar systems, the requirements of the National Environmental Policy Act 
would ensure that appropriate federal agencies, including the Federal Aviation 
Administration, the Department of Defense, or the National Oceanic and Atmospheric 
Administration are involved in the permitting of any wind energy project. 

9. According to your testimony, the Bureau of Reclamation has 58 hydroelectric power 
plants that provide for the residential energy needs of 3.6 million households. The same 
number of households could be flowered by only 3 large coal or nuclear power plants. 
Noting this inefficiency, as well as the importance of our nation's waters, are these 
hydroelectric plants the best use, especially when taking into account these plants' 


3 



192 


potential to obstruct fish passage to spawning grounds or to the ocean, to degrade 
both aquatic and streamside habitats, and to impact water quality by lowering the 
amount of dissolved oxygen in the water? 

Response: While I am not familiar with costs associated with bringing additional nuclear 
power online, I share your concern that we must manage our energy resources in 
environmentally responsible ways. At facilities under its jurisdiction, the Department 
funds activities related to Endangered Species Act compliance and habitat restoration. 
Many of these projects are located at sites that provide water for irrigation, infrastructure 
for flood control, or other benefits. In this context, hydropower is a low cost source of 
energy that emits a fraction of the greenhouse gases generated by fossil-based energy 
sources. 

10. Given the fact that DOI has 70,000 employees with "scientific and land 
management expertise" that are already addressing adaptation problems with 
climate change throughout the nation, how does this bill benefit the DOI other than 
by with a windfall of extra money taken from the revenues of a national energy tax? 
What specific language or areas in the bill will give DOI a greater ability to address 
climate change? 

Response: Global climate change is a complex challenge that requires leadership and 
new and innovative solutions and incentives. This legislation highlights the lead role of 
the Department of the Interior as the steward of America’s public lands and natural 
resources. 

1 1 . Section 362 on page 345 of the Chairman's Mark, states the following: 

"It is the policy of the Federal Government, in cooperation with State and local 
governments, Indian tribes, and other interested stakeholders, to use all practicable 
means to protect, restore, and conserve natural resources so that natural resources 
become more resilient, adapt to, and withstand the ongoing and expected impacts of 
Climate change, including, where applicable, ocean acidification, drought, flooding, and 
wildfire. " 

Further on Section 363 defines the term natural resources as: "Fish, wildlife, plants, 
habitats, and terrestrial, freshwater, estuarine, and marine ecosystems of the United 
States, " 

The Chairman's mark would create more than 50 pages of new federal law establishing a 
new national obligation to use "all practical means" to protect fish and wildlife from 
climate change, but the proposal doesn't contain even a single a paragraph about 
safeguarding our ability to feed ourselves. Does this seem like a good idea to you? 

Response: The health of the environment and our ability to feed ourselves are 
inextricably linked. Ensuring well-functioning ecosystems promotes healthy lands, fish, 
and wildlife. As we work to address this challenge, we are working to ensure a healthy 
planet and the continued ability of our lands and waters to provide sustenance. 


4 



193 


12. What provisions of the Chairman's mark ensure that farmers and ranchers will 
"become more resilient, adapt to, and withstand the ongoing and expected impacts of 
climate change?" 

Response: I believe that any actions that we take that benefit the health of the public 
rangelands under the Department’s jurisdiction that are available for grazing will 
ultimately benefit the ranchers and farmers who utilize those lands. 

13. If this bill became law, could the mandate to employ "all practical means " [sicj 
to protect fish and wildlife be used in litigation to undermine federal and state laws, 
agreements and contracts governing the allocation of water resources and the use of 
public lands? 

Response: It would not be appropriate for me to speculate about potential litigation that 
could arise under this yet-to-be enacted legislation. Climate change is a complex 
challenge that requires leadership and new and innovative solutions and incentives. We 
stand ready to work with the Committee to ensure that the necessary authorities are in 
place to help us address the resulting resource challenges. 

14. Could this mandate to employ "all practical means" (sic] to protect fish and 
wildlife be used to justify involuntary re-allocations of water, land and other 
resources away from current users in order to protect fish and wildlife? 

Response: As noted previously, it would not be appropriate for me to speculate about 
potential litigation that could arise under this yet-to-be enacted legislation. 

1 5. Should the bill put safeguards for domestic agriculture on an equal footing with 
safeguards for fish and wildlife? 

Response: While we defer to the Department of Agriculture for any substantive 
responses related to the domestic agriculture sector, any actions taken for the benefit of 
the health of our public lands will also benefit the ranchers and farmers who utilize those 
lands. 


5 



194 


Environment and Public Works Committee Hearing 
October 27, 2009 

Follow-Up Questions for Secretary Salazar 
Senator John Barrasso 

1. Communities in coal country have tried to develop renewable energy such as wind, 
which could lead to job growth. 

Unfortunately, they are running into some obstacles. There was a recent article in the 
Washington Post entitled "Tiny bat pits green against green." 

The sub-headline is "Wind farm could cut carbon, but could it also kill endangered 
species?" The article is about a Chicago company trying to build wind turbines in West 
Virginia to generate clean energy and jobs in the region. Environmentalists apparently 
think the turbines might hurt an endangered bat and are suing to block the construction of 
the turbines under the Endangered Species Act. 

In my home State of Wyoming we have run into the same problem, where environmental 
groups are blocking wind production across large areas of my home State because of the 
sage grouse. How can we build green renewable energy if we do not provide 
regulatory relief in any climate change bill to allow such projects to move forward 
without all the red tape? 

In addition, how can we say that green jobs are going to replace lost jobs in coal 
country if all attempts to do so are being blocked by environmentalists? 

Response: The Administration is moving forward - successfully - on a number of 
energy fronts, including development of both conventional and renewable resources. The 
Department has taken a number of steps over the past months to ensure that this 
development occurs responsibly and in a more coordinated fashion. For example, the 
Department: 

• created the first-ever framework for offshore renewable energy development; 

• clarified the relationship between the Federal Energy Regulatory Commission and 
the Department with respect to potential offshore renewable projects; 

• funded and staffed Renewable Energy Coordination Offices in western states to 
help complete reviews on the most ready-to-go solar, wind, geothermal, and 
biomass projects on public lands; 

• set aside 1 ,000 square miles of public lands in 24 “Solar Energy Study Areas” that 
BLM is evaluating for environmentally appropriate solar energy development 
across the West; and 

• entered into MOUs with - 

o the State of California to more efficiently and effectively permit renewable 
energy projects on Department lands in California; 


6 



195 


o The Western Governors’ Association, DOE and USDA for identification 
and uniform mapping of wildlife corridors and crucial habitats; and 
o Eight other federal agencies to better coordinate the process of permitting 
transmission infrastructure across federal lands. 

These actions demonstrate our commitment to development of our energy resources in a 
thoughtful, responsible way that allows for development and also protects the 
environment. 

2. 1 recently introduced a bill that determines the ownership of the pore space below 
federal lands. This issue must be determined before long-term carbon storage projects 
will occur, particularly in the West where so much of our land is federal land. 

Do you believe the federal government should own the pore space below federal 
lands? 

Response: We recognize the importance of this issue. Here in the Department, the U.S. 
Geological Survey has been developing a methodology to assess the volume of pore 
space in subsurface rocks that is able to store carbon dioxide for tens of thousand of 
years. As we move forward with actions like this that are intended to facilitate the large- 
scale development of geologic carbon sequestration, the issue of pore space ownership 
must be resolved. Congressional action may be necessary to accomplish this. 


7 



196 


Senator Boxer. Thank you very much. 

And EPA Administrator, Lisa Jackson, welcome. 

STATEMENT OF HON. LISA P. JACKSON, ADMINISTRATOR, 
U.S. ENVIRONMENTAL PROTECTION AGENCY 

Ms. Jackson. Thank you, Chairman Boxer, thank you to Rank- 
ing Minority Member Inhofe and members of the committee for in- 
viting me to testify about the Clean Energy Jobs and American 
Power Act. It is always a good day when I join my colleagues from 
the Administration here and EPA’s authorizing committee. 

I last appeared before this committee on July 7th. Since then, 
this Administration has, under President Obama’s leadership, 
taken unprecedented steps to decrease America’s dependence on 
oil, put our Nation in the lead of the 21st century energy economy 
and reduce the greenhouse gas pollution that threatens our chil- 
dren and grandchildren. 

On September 15th, for example, as you have already heard, Sec- 
retary LaHood and I jointly announced coordinated DOT and EPA 
rulemakings to increase fuel efficiency and reduce greenhouse gas 
emissions of cars and light trucks through the year 2016. The joint 
DOT/EPA rules will reduce the lifetime oil consumption of those ve- 
hicles by 1.8 billion barrels. That will mean eliminating more than 
a billion barrels of imported oil, assuming the current ratio of do- 
mestic production to imports does not improve. 

At today’s oil prices, we are talking about saving $78 billion of 
the dollars that America would otherwise give to other countries 
for their oil. In the process, the rules will avoid nearly a billion 
metric tons of greenhouse gas pollution. And we have heard each 
of my colleagues here describe other steps that the Administration 
has already taken to make America’s economy stronger by getting 
it running on clean energy. 

Even as the President and members of his Cabinet move forward 
under existing authority, we continue urging Congress to pass a 
new clean energy law. Only new legislation can bring about the 
comprehensive and integrated changes that are needed to restore 
America’s economic health and keep the Nation secure over the 
long term. This committee held its July 7th hearing shortly after 
the House of Representatives had passed the American Clean En- 
ergy and Security Act. So I took the opportunity to echo President 
Obama’s request that the Senate demonstrate the same commit- 
ment that we had seen in the House to building a clean energy 
foundation for a strong American economy. 

While the introduction of the Clean Energy Jobs and American 
Power Act on September 30th shows that the Senate is responding 
to the President’s call to action, and I commend you, Madam Chair, 
and Senators Kerry and Kirk, for introducing that bill. I applaud 
the many Senators, including members of this committee, who have 
contributed meaningfully to the Chairman’s mark, and I thank 
Senator Graham for joining with Senator Kerry in a recent state- 
ment that reminds all of us that giving America control over its en- 
ergy future can and should be a bipartisan mission. 

Earlier this year, EPA ran the major provisions of the House 
Clean Energy legislation through several economic computer mod- 
els. When it comes to the specifications that the models are de- 



197 


signed to detect, the Clean Energy Jobs and American Power Act 
is very similar to the House legislation. Nevertheless, EPA has ex- 
amined the ways in which the Senate bill is different and has de- 
termined which of the conclusions reached about the House passed 
bill can confidently be said to apply to the Senate bill as well. 

EPA delivered the results of that inquiry to the committee last 
Friday, and the members can review the report in detail. But let 
me just state some of the key projections about the House bill that 
EPA feels confident also apply to the Clean Energy Jobs and Amer- 
ican Power Act. 

First, the legislation would transform the American economy 
from one that is relatively energy inefficient and dependent on high 
polluting energy to one that is highly energy efficient and powered 
by advanced, cleaner and more domestically sourced energy. Sec- 
ond, the legislation would bring about that transformation at a cost 
well below 50 cents per day per American household in 2020. 

Third, the region by region cost differences would be small. Fi- 
nally, if the U.S. adopted the legislation, then the world could avoid 
a 2 degree Celsius rise in temperature over pre-industrial levels 
without assuming international action any more ambitious than 
the goals agreed to at the July 9th major economies forum. That 
is good news, because as the U.S. global climate change research 
program reported in June, a 2 degree Celsius rise would subject the 
American people to unacceptable risk from catastrophic harm, from 
intensified droughts, wildfires, spring floods, heat stress to live- 
stock and much more. 

Madam Chairman, the American people have waited decades 
while our Nation has become increasingly dependent on foreign en- 
ergy sources, while our global competitors create the clean energy 
jobs of tomorrow, and while we fail to safeguard the well-being of 
our children and our grandchildren. I think Americans are tired of 
listening to the same corporate interest groups that vastly exagger- 
ated the cost of reducing acid rain pollution and of reformulating 
gasoline. I think Americans want reform that harnesses the coun- 
try’s can-do spirit. I think they want to fuel long-term economic re- 
covery with a wise investment that sparks a clean energy trans- 
formation and protects our children and grandchildren. 

The Clean Energy Jobs and American Power Act is a significant 
milestone on that road. There of course remains the road ahead. 
There are many Senators on and off this committee who have tre- 
mendous value to add. Thank you for your continuing work, and 
thank you for inviting me to testify today. 

[The prepared statement of Ms. Jackson follows:] 



198 


Statement of Lisa P. Jackson 
Administrator, U.S. Environmental Protection Agency 
Senate Committee on Environment and Public Works 
Legislative Hearing on S. 1733, the Clean Energy Jobs and American Power Act 

October 27, 2009 

Chairman Boxer, Ranking Minority Member Inhofe, and members of the Committee, 
thank you for inviting me to testify about the Clean Energy Jobs and American Power Act. 

I last appeared before this Committee on July 7. Since then, this Administration has, 
under President Obama’s leadership, taken unprecedented steps to decrease America’s 
dependence on oil, put our nation in the lead of the 21 st Century energy economy, and reduce the 
greenhouse-gas pollution that threatens our children and grandchildren. 

On September 1 5, for example. Secretary LaHood and I jointly announced coordinated 
Department of Transportation and Environmental Protection Agency rulemakings to increase the 
fuel efficiency and reduce the greenhouse-gas emissions of cars and light-duty trucks of model 
years 2012 through 2016. The rules will reduce the lifetime oil consumption of those vehicles by 
1 .8 billion barrels. That will mean eliminating more than a billion barrels of imported oil, 
assuming the current ratio of domestic production to imports does not improve. At today’s oil 
prices, we are talking about saving 78 billion dollars on buying oil from other countries. In the 
process, the rules will eliminate nearly a billion metric tons of greenhouse-gas pollution. 

Each of my colleagues here can describe other steps that this Administration has already 
taken to make America’s economy stronger by getting it running on clean energy. 

Even as the President and the members of his Cabinet move forward under existing 
authority, we continue urging Congress to pass a new clean-energy law. Only new legislation 
can bring about the comprehensive and integrated changes that are needed to restore America’s 
economic health and keep the nation secure over the long term. 

This Committee held its July 7 hearing shortly after the House of Representatives passed 
the American Clean Energy and Security Act. So 1 took the opportunity to echo President 
Obama’s request that the Senate demonstrate the same commitment that we had seen in the 
House to building a clean-energy foundation for a strong American economy. 

The introduction of the Clean Energy Jobs and American Power Act on September 30 
shows that the Senate is responding to the President’s call to action. I commend you, Madame 
Chairman, and Senators Kerry and Kirk, for introducing that bill. 1 applaud the many other 
Senators, including members of this committee, who contributed meaningfully to the introduced 
legislation. And I thank Senator Graham for joining with Senator Kerry in a recent statement 
that reminds us all that giving America control over its own energy destiny can and should be a 
bi-partisan mission. 

Earlier this year, EPA ran the major provisions of the House clean-energy legislation 
through several economic computer models. When it comes to the specifications that the models 



199 


can detect, the Clean Energy Jobs and American Power Act is very similar to the House 
legislation. Nevertheless, EPA has examined the ways in which the Senate bill is different and 
determined which of the conclusions reached about the House-passed bill can confidently be said 
to apply to the Senate bill as well. 

EPA delivered the result of that inquiry to the Committee last Friday, and the members 
can review the report in detail. But let me just state three of the projections about the House bill 
that EPA feels confident also apply to the Clean Energy Jobs and American Power Act. 

First, the legislation would transform the American economy from one that is relatively 
energy inefficient and dependent on highly-polluting energy production to one that is highly 
energy efficient and powered by advanced, cleaner, and more domestically-sourced energy. 

Second, the legislation would bring about that transformation at a cost of less than 50 
cents per day per American household in 2020. 

Third, the finding that regional cost differences would be small applies to the Senate bill 
just as it did to the House legislation. 

The American people have waited decades while our nation has become increasingly 
dependent on foreign energy sources; while our global competitors create the clean energy jobs 
of tomorrow; and while we fail to safeguard the wellbeing our children and grandchildren. 

I think Americans want reform that harnesses the country's can-do spirit. I think they 
want to fuel long-term economic recovery with a wise investment that sparks a clean-energy 
transformation in our economy and that protects our children and grandchildren. 

The Clean Energy Jobs and American Power Act is a significant milestone on the road to 
that reform. There of course remains road ahead, and there are many Senators on and off this 
Committee who have tremendous value to add. Thank you for your continuing work, and for 
inviting me to testify today. 


2 



200 


Environment and Public Works Committee Hearing 
October 27, 2009 

Follow-Up Questions for Written Submission 


Senator Tom Udall 

1. As currently drafted the legislation puts the point of regulation (POR) for natural gas liquids 
(NGLs) at the point of fractionation, and requires the owner of the NGLs to acquire an allowance 
for those products, even though a large percentage of these NGLs will not be combusted and 
therefore will be non-emissive because they will be used as building blocks for petrochemical 
and plastic products. The legislation contemplates that the owner of the NGLs will be 
compensated for the cost of those allowances when the NGLs are sold to the end use customer — 
most likely a petrochemical or refining facility. The owners of those facilities will, in turn, are 
able to obtain “compensatory” allowances for their non-emissive, feedstock use of those 
products. 1 have some questions about the efficiency of this arrangement and would greatly 
appreciate EPA’s technical advice on how to improve it. 

• Since petrochemical facilities use the vast majority of their NGL’s as a feedstock in the 
manufacturing of plastics and refiners who use NGLs for blending with motor fuels are 
already covered facilities that must present allowances to EPA for their emissions under 
the bill, would it be simpler from a regulatory standpoint to put the responsibility for 
acquisition of the allowance on the small portion of NGL's being actually used as a fuel? 

Administrator Jackson Response: 

EPA staff stands ready to provide your office with technical assistance in determining 
whether the approach you describe would be simpler and at least as effective. 


• Linder the proposed draft is there an opportunity for regulated entities to take advantage 
of incomplete pass-through of allowance costs in the transaction between the owner at 
fractionation and the ultimate consumer, thus creating an opportunity to create windfalls 
through the compensatory allowance structure? If so, what steps could be taken to 
prevent any windfalls? 

Administrator Jackson Response: 

EPA staff stands ready to provide your office with technical assistance in identifying 
whether any such risk exists and, if so, designing appropriate steps to eliminate it. 


• Is EPA prepared to institute a regulatory program to ensure that all costs incurred by the 
owner at fractionation are fully recovered and windfalls are avoided and if so, how would 
such a regulatory program potentially work? 



201 


Administrator Jackson Response: 

If legislation like S.1733 were enacted, EPA would, under the authorization contained in 
the statute, begin immediately to prepare to institute such a program in time to begin the 
emissions allowance allocation system and emissions cap established by the statute. 


Senator James M. Inhofe 

1. Administrator Jackson, Sen. Barrasso and 1 sent you letters on the endangerment finding 
in August and September, and heard no response. We finally got a stack of documents yesterday 
evening. It seems the only time I get responses from you is the night before you testify before 
the committee. I am very disappointed with this, especially since you said in your nomination 
hearing that you would treat requests from the minority the same as those from the majority. 

This has become a pattern and practice. Will this continue, or can you commit to me to respond 
to my requests in a timely and transparent fashion? 

Administrator Jackson Response: 

EPA has responded to your requests in a timely fashion in light of the scope of the requests, and 
we will continue to respond in a timely and transparent manner. 


2. Administrator Jackson, Michigan and California have both tried to create green jobs and 
move to a so-called “green economy.” Yet, California has a 12.2 percent unemployment rate, 
the nation’s 4 th highest; Michigan’s is 15.3 percent, the nation’s highest. These are far higher 
than the national rate of 9.8 percent. In light of your considerable experience with green jobs, 
can you explain what is happening in those states? How would putting a price on carbon help 
those states, when we know, according to CBO, that cap-and-trade results in a net loss of jobs? 

Administrator Jackson Response: 

The economic challenges facing our states are the result of a number of circumstances which 
vary to some extent by state. What is clear is that states and the nation as a whole cannot stay 
competitive if we don’t move to a 2 1 st century economy powered by low-carbon energy while 
China and other major economies do. I applaud the efforts of California and Michigan to 
position their economies to take advantage of the move to clean energy and green jobs. Putting a 
price on carbon will help those states and others make further progress by providing a strong 
price signal for the development and deployment of clean energy that will provide the foundation 
for our country’s economy going forward. 


3. EPA concedes on page 3 of its analysis that Kerry-Boxer’s mandates and standards 
restrict the way sources can meet the cap, which will increase the cost without delivering 
additional emissions reductions. Can you explain this for me? 


2 



202 


Administrator Jackson Response: 

As stated in EPA’s analysis of S. 1 733, a cap-and-trade policy “assures that the cap is met at the 
cheapest possible cost to covered sources while inducing long-term innovation and change in the 
production and consumption of energy-intensive goods in related markets.’' This section of the 
analysis also states that, “Standards that impose restrictions on the way in which a particular 
subset of sources meet the cap will reduce this flexibility and, if binding, likely increase the costs 
without delivering additional emission reductions.” This statement was intended to contrast a 
cap-and-trade policy with generic command-and-control policies, and does not refer to specific 
provisions of H.R. 2454 or S. 1733. 


4. Do you agree that the worker adjustment assistance provisions in Title 3, Part 2, sections 
311 through 313 in Kerry-Boxer are needed because this bill will cost jobs? 

Administrator Jackson Response: 

No. I believe the bill will create good, clean energy jobs that cannot be moved overseas. As we 
build a workforce trained in the skills needed for a clean energy economy, we will not only be 
putting Americans to work, but we will be making changes that reduce energy costs. For 
example, homes across America can be weatherized and made more energy-efficient, creating 
jobs that can’t be outsourced while saving families hundreds of dollars a year. 

5. I understand that new legislation usually entails new programs. But Sen. Webb 
compared the bureaucracy in Lieberman-Wamer to “the old Soviet Union.” Lieberman-Warner 
was 344 pages. Kerry-Boxer is 923 pages. Waxman-Markey is 1,400 pages. How would you 
describe the bureaucracy and mandates in this bill? And if this a market-based approach, why is 
all of this necessary? 

Administrator Jackson Response: 

The cap and trade program in the Kerry-Boxer and Waxman-Markey bills would provide a 
streamlined, highly efficient mechanism for obtaining the deep reductions in greenhouse gases 
that are needed to address the threat of climate change. But we also know that the price signal 
the cap and trade program would establish may not be strong enough in the early years to spur 
the technological changes needed for the nation’s transition to a clean energy economy. Market 
barriers can also lessen the impact of the price signal the cap and trade program would provide. 
The bills deploy a number of complementary measures to address these well-recognized issues. 

6. I note that you mentioned the joint EPA/DOT regulation to set auto emission standards 
and fuel economy standards for motor vehicles. Both standards are for the 2012-2016 model 
years. As I understand it, DOT has to provide a certain amount of lead time to permit 
manufacturers to tool-up. EPA has the same problem, but only because it has proposed to issue a 
positive endangerment finding which would require the setting of motor vehicle emission 
standards to address GHG pollutants. Now I know that EPA’s regulations will get some nitrous 


3 



203 


oxide and methane emissions reductions, but the bulk of its reductions will be in carbon dioxide 
emissions. I believe that as far as C02 is concerned EPA and DOT will get roughly the same 
amount of emissions reductions. Therefore I have two questions: is there a court imposed 
deadline to get the EPA portions of this rule out? Did you weigh the cost-benefits of not making 
carbon dioxide a regulated pollutant, suffering the emission reductions not achieved, against the 
costs of putting many small sources in legal jeopardy of having to decide to get or not 
get construction permits for new construction and significant modifications? 

Administrator Jackson Response: 

EPA has issued its proposed light-duty vehicle standards as part of its efforts to expeditiously 
respond to the Supreme Court’s now 2 !4 -year-old ruling that greenhouse gases are air pollutants 
under the Clean Air Act and that EPA must answer the endangerment question posed by a now 
10-year-old rulemaking petition for vehicle greenhouse gas standards under section 202(a) of the 
Act. While there is not a court-ordered deadline for EPA to issue the proposed standards, 1 take 
very seriously the obligation to respond to the Supreme Court’s decision. We note that the 
Supreme Court directly addressed the issue of whether DOT regulations are sufficient to absolve 
EPA of its mandate; specifically the court finding stated “ that DOT sets mileage standards in no 
way licenses EPA to shirk its environmental responsibilities. EPA has been charged with 
protecting the public’s “health’’ and “welfare,” 42 U. S. C. §7521 (a)(1), a statutory obligation 
wholly independent of DOT’S mandate to promote energy efficiency.” 

It is also important to remember that if EPA were to further delay this proposal, there could be 
separate federal and state regimes independently regulating light-duty vehicles to reduce fuel 
consumption and GHG emissions: NHTSA’s CAFE standards, and the GHG standards 
applicable in California and other states adopting the California standards. The joint EPA- 
NHTSA proposal would allow automakers to meet both the NHTSA and EPA requirements with 
a single national fleet. In addition, California’s commitment to defer to the federal program is 
also conditioned on EPA adopting GHG standards of this type. 

For several reasons, the estimates of benefits and costs presented by EPA and NHTSA, while 
consistent, are not directly comparable and should not be expected to be identical. EPA estimates 
that the proposed GHG standards will result in a reduction of 947 million metric tons of C02 
from the 2012-2016 vehicles over their lifetime. DOT has estimated that the CAFE program 
alone will result in a reduction of 639 million metric tons of C02. In response to your second 
question, EPA is addressing concerns over PSD permitting by a proposed rule on PSD permitting 
requirements, which is discussed further in the answer to question #30. 


7. Many think the PSD tailoring rule is legally suspect and if the rule is overturned everyone 
that followed your regulation would be in legal jeopardy. You may leave them alone, but can 
EPA protect them from citizen suits? I know you have some legal theory about judges keeping 
an illegal rule effective until EPA makes corrections. 


4 



204 


Administrator Jackson Response: 

1 believe the proposed PSD tailoring rule is legally sound. It would focus state permitting efforts 
on the largest sources of greenhouse gas emissions for at least five years and describes a process 
for evaluating future regulation of additional sources. In the case of a citizen suit, should the 
final rule remain as proposed, the court would have a solid basis for rejecting the challenge 
because of the rule’s legal foundation, which is described at length in the preamble to the 
proposed rule. See, in particular, 74 Fed. 55292, 55303-55320 (October 27, 2009). EPA will, of 
course, carefully consider the comments it receives in response to the proposal. 


a. Why do you think that will work when I am told you have tried to get the Act to 
work first by proposing streamlined permitting for small sources? 

Administrator Jackson Response: 

I believe the proposed rule’s legal foundation will provide a court with a solid basis 
for upholding it. As we develop the final rule, we will take into account the public 
comments we receive, and I am confident the rule will be stronger as a result. The 
proposed rule includes a discussion of EPA’s intention to develop streamlining 
techniques for smaller sources to the extent feasible. 


b. Again, what is the rush? I have been told you arc pressuring Congress to pass 
climate change legislation. Is that true? Or do you really think this path to chaos 
is prudent regulatory behavior? 

Administrator Jackson Response: 

I he Pmuleeit .uhs I Fan . tepettteti _ jttkei l « jne«fc -.i p,E ci,r:>prdhrat5.i! t j elirerute 
htmtre - '■ -- -=, r:_ - \ I _ Bttxlkifct tt:EC:rcj."i pcmling 

Vi ihftL! > r --r“ - ovmtrs -.j_ pi tatajjk B »tt+ i, r tk L Ch'k -V ^ - 

Supreme (. oiii-t Is id cm! b •/ 'its. The jicrf ta cictdirg s-s; cliKutL chiartge h uiyert. 

1 ’ > - q : i> 1 .if r i i. i. =a . - 1 !i-l hi 1 * >li a il hI l“- itiii * hi 

-■ ■ r, 'i . e i , ■ - ’ll . it r.-js.i; to titose i ■nlici'ii ■ . !■ JuLt 


8. Along with Sen. Voinovich, I asked for an analysis of H.R. 2454 with what I believed 
were realistic assumptions about the availability of international offsets, the ability to only 
construct a modest number of additional new nuclear plants above those that had to be replaced, 
and finally the lack of carbon capture and sequestration (CCS) availability. Our request was not 
granted. I have no analysis as to what many believe are realistic scenarios for the future. Doubly 
troubling is the fact that your S.1733 analysis is believed by your experts to be “close” to the 
H.R. 2454 analysis. During this committee’s consideration of the Lieberman-Warner bill, I 
received a comprehensive technical analysis after the bill had passed out of committee. I have 
some questions regarding your analysis of S. 1 733: 


5 


205 


What scenario did EPA use for its base case for S. 1 733 (or herein after “Chair’s Mark”)? 
What sensitivity analyses did you perform on S.1733? 

Administrator Jackson Response: 

As stated in our analysis of S. 1733 “EPA synthesized the results of a significant volume 
of modeling analysis on economy-wide climate policy performed by the Agency. This 
effort drew from the nearly 50 modeling scenarios of five bills over the past two years, 
with particular focus on the two economic analyses of the Waxman-Markey bill this 
year.” 


a. Please describe how EPA synthesized the results of various modeling exercises? 

Administrator Jackson Response: 

EPA assessed how the differences between H.R. 2454 and S. 1733 would likely 
impact modeled costs. Many of the differences between the bills had previously been 
examined in sensitivity scenarios included in previous EPA analyses. EPA also 
presented some of the modeled costs from the core scenario (scenario 2) of EPA’s 
analysis of H.R. 2454 for comparison. EPA discussed additional sensitivity cases that 
were run for previous bills that would also be applicable for S. 1 733. 

b. In modeling the market stability reserve, under which scenario or sensitivity run 
did the reserve run out of allowances, and what was the resultant allowance price? 

Administrator Jackson Response: 

EPA did not explicitly model the market stability reserve. The discussion of the 
reserve running out was simply based on the amount of allowances that were initially 
placed in the reserve and the amount of allowances that are allowed to be auctioned 
from the reserve in each year. This discussion did not require any modeling. 


c. Under S.1733, if the Administrator does not determine that sufficient CCS has 
been commercially deployed, NSPS is not triggered. Do you model the impact this 
may have on the development of new coal fired power plants? Without CCS, what 
control technology and at what cost in $/kw do you project to be available? 

Administrator Jackson Response: 

EPA modeling shows that new conventional coal plants (without CCS) are not built 
in the presence of a carbon price, whether CCS is available or not. Thus, EPA has not 
specifically analyzed this provision. In the absence of CCS, there are many low- 
emitting power technologies that are available to meet emission reduction targets. 


6 



206 


The cost assumptions for these technologies are taken from EIA’s AEO 2009 (April 
update). For the coal-fired facilities, emission reduction options (excluding CCS) 
include biomass co-firing, plant efficiency improvements, or changes to utilization. 


9. Your models are deficit neutral, but since S.1733 is unlikely to pass without being scored 
as deficit neutral, did you model the impacts of the Deficit Reduction Fund? What were the 
impacts on allowance prices as a result of the smaller number of allowances allocated to utilities? 

Administrator Jackson Response: 

As stated in our analysis of S. 1 733, “EPA synthesized the results of a significant volume of 
modeling analysis on economy-wide climate policy performed by the Agency. This effort drew 
from the nearly 50 modeling scenarios of five bills over the past two years, with particular focus 
on the two economic analyses of the Waxman-Markey bill this year.” EPA has not included a 
scenario that varies the deficit reduction fund in the analyses it has conducted of climate 
legislation for the House or in prior Congresses. 


10. Table 5 of your discussion lists a number of small or slight increases as well as a slight 
decrease in the difference between S. 1733 and H.R. 2454. What are the sum of the increases, 
and the result of the sum of the decreases, minus the decrease? 

Administrator Jackson Response: 

We have not estimated a sum total of the differences between S. 1 733 and H.R. 2454 but are 
confident that the economic impacts of S. 1733 are very similar to H.R. 2454. 


II. In your discussion of emissions and resulting carbon dioxide concentration increases over 
time, what formula, equation or mathematical relationship between emissions, carbon 
dioxide concentration, and temperature did you use? What was the source of this 
relationship? 

Administrator Jackson Response: 

As stated in EPA’s October 23 report, the agency evaluated the impact of policies like S. 1733, 
combined with actions by other governments, on global C02-equivalent concentration levels and 
global average temperature rise. On pages 25-28 of EPA’s October 23 report, we noted that we 
used the MiniCAM and MAGICC models to assess global emissions, concentrations, and 
temperature rise through 2100. We used a climate sensitivity of 3.0, which was deemed the 
"best estimate” by the 1PCC Working Group 1 in their 2007 report. 


7 



207 


12. At what point in time and under what scenario or sensitivity run did the strategic reserve 
run out of allowances? What were the consequences for allowance prices and impacts on 
consumers? 

Administrator Jackson Response: 

As stated in our analysis of S. 1 733, “EPA synthesized the results of a significant volume of 
modeling analysis on economy-wide climate policy performed by the Agency. This effort drew 
from the nearly 50 modeling scenarios of five bills over the past two years, with particular focus 
on the two economic analyses of the Waxman-Markey bill this year.” EPA has not run a 
scenario or sensitivity run in any of its publically available modeling where the strategic reserve 
runs out of allowances. 


13. Did you analyze the sensitivity of your model to the case where there were no 
international offsets available? If so, please provide your results. 

Administrator Jackson Response: 

We included a sensitivity of no international offsets in our H.R. 2454 modeling. See Scenario 7, 
slide 40 of the H.R. 2454 analysis for the results. 


14. Did you analyze the sensitivity of your model where no new nuclear power plants were 
constructed? If so, please provide your results. 

Administrator Jackson Response: 

We included a sensitivity of no new nuclear generation growth beyond the reference case in our 
H.R. 2454 modeling. See Scenario 5, Slide 17 of the H.R. 2454 analysis for the results. 


15. Did you analyze the sensitivity of your model where CCS does not become commercially 
available until 2030, or is never available? If so, please provide your results. 

Administrator Jackson Response: 

EPA has not included this scenario in the analyses it has conducted of climate legislation in the 
House or in prior Congresses. However, EPA’s analysis of S. 2191 included a scenario 
constraining nuclear, biomass, and CCS. The results of this scenario are available in our analysis 
of S. 2191. 


16. Did you analyze the sensitivity of your model to the case where there are no new nuclear 
plants being constructed, CCS is not available, and there are no international offsets? 


8 



Administrator Jackson Response: 


EPA has not included this scenario in the analyses it has conducted of climate legislation in the 
House or in prior Congresses. However, EPA’s analysis of S. 2 1 9 1 included a scenario 
constraining nuclear, biomass, and CCS; and a scenario that did not allow offsets; but did not 
include a scenario combining these constraints. The results of this scenario are available in our 
analysis of S. 2191. 


1 7. Please provide the amount of renewable energy that each scenario and/or sensitivity run 
projected to be built. Please break this down by type. 

Administrator Jackson Response: 

As stated in our analysis of S. 1 733, “EPA synthesized the results of a significant volume of 
modeling analysis on economy-wide climate policy performed by the Agency. This effort drew 
from the nearly 50 modeling scenarios of five bills over the past two years, with particular focus 
on the two economic analyses of the Waxman-Markey bill this year.” In EPA’s analysis of H.R. 
2454, the share of renewable electricity in the reference scenario is 6% of generation in 2015, 8% 
in 2020, and 10% in 2030. In “scenario 2 - H.R. 2454” the renewable generation share increases 
to 8% in 2015, 12% in 2020, and 20% in 2030 (other policy scenarios have similar renewable 
shares). 


1 8. Please provide your analysis of the impact of carbon dioxide pipeline construction on the 
amount of expected CCS use within the series of analyses you performed. 

Administrator Jackson Response: 

EPA’s analysis does not estimate specific pipeline construction needed for climate legislation. 
EPA assumes a cost of $ 1 5/ton of C02 to reflect the costs of building, transporting, and storing 
C02 underground. 


19. In your discussion of energy efficiency provisions, you stated that S.l 733 would have 
energy efficiency impacts of about half those calculated for H.R. 2454. Please provide your 
analytical methodology for this estimate and the actual amount of impact. 

Administrator Jackson Response: 

As discussed in our S. 1 733 assessment, three areas of energy efficiency provisions were 
addressed within our analysis of H.R. 2454: building codes, energy efficiency-related allowance 
allocations, and the energy savings component of the Combined Efficiency and Renewable 
Electricity Standard (CERES). In our analysis of H.R. 2454 (p. 1 8 of 53), EPA indicated that the 
impact of these provisions on electricity demand was estimated to grow to 5% of reference case 



209 


demand by 2020 and increase to 5.6% of reference case demand in 2050. Each of the three areas 
contributed significantly to this total effect, roughly 1/3 over the entire period through 2050. 

In S. 1 733 there is no provision comparable to the CERES provision of H.R. 2454. Also, the 
allowance allocations for energy efficiency are lower in S. 1 733 than H.R. 2454, ranging from 
approximately 1 1% lower through 2029 to approximately 25% lower in 2040 and later years. 
This has a proportional impact on our estimate for the effects of these provisions. In addition, 
the absence of an allowance mechanism for addressing non-compliance within the building 
codes provision lowers our estimate of the energy savings effects of this provision In total we 
estimate the aggregate impact of the energy efficiency provisions in S. 1 733 to be approximately 
half of the comparable provisions within H.R. 2454. 


20. Table 4 on page 17 of your discussion contains very useful information about H.R. 2454. 
Please provide a similar table for S.l 733 and the back-up material. 

Administrator Jackson Response: 

EPA developed the S. 1 733 analysis based on synthesizing the results of nearly 50 modeling 
scenarios of five bills over the past two years. As we noted in the October 23 rd paper, because of 
the many similarities between H.R. 2454 and S. 1733 and the relatively small differences 
between the two bills, we expect that S. 1 733 would have economic impacts very similar to H.R. 
2454, as depicted in Table 4. 


2 1 . Does your schedule that is posted on EPA’s website accurately reflect your public 
meetings and administration meetings? 

Administrator Jackson Response: 

My office endeavors to keep the schedule posted on EPA’s website accurate and up-to-date. 


22. S. 1 733 and H.R. 2454 will require the EPA to promulgate quite a few new rules and 
regulations before the contemplated trading scheme can start in 2012. However, the existing 
trading program for pollutants that are actually harmful to public health. Clean Air Interstate 
Rule (CAIR), was vacated by the DC Circuit Court of appeals on July 1 1 , 2009 - almost 16 
months ago - and still the EPA has failed to issue even a proposed replacement rule. Given 
the agency’s historical record regarding the time required to promulgate new rules, is it even 
feasible for the agency to promulgate all the necessary regulations for a new cap and trade 
scheme before the 2012 start date? 

Administrator Jackson Response: 

The more appropriate comparison for developing and implementing regulations directed by 
legislation is EPA’s experience with Clean Air Act Title IV, which established the Acid Rain 


10 



210 


Program. Congress passed the Clean Air Act amendments that added Title IV in November 
1 990; Title IV required EPA to establish a program to reduce the adverse effects of acidic 
deposition in part through cap-and-trade. To implement that statutory mandate, EPA codified 
the Acid Rain Program requirements in seven regulations. In this case, EPA has already made 
substantial progress in establishing a system to collect and verify greenhouse gas emissions 
through promulgation of the Greenhouse Gas Mandatory Reporting Rule. 

23. The EPA has a record of problems in administering the annual Sulfur Dioxide allowance 
auctions. Just last year, the agency initially reported erroneous results regarding the winning 
bidders of the annual Sulfur Dioxide allowance auction. Currently, it is contemplated that the 
EPA would have authority over both the supply (via allocation, strategic reserve, determination 
of new emissions subject to regulation) and demand (through regulations around measurement 
and account true up) aspects of the trading scheme. From both an internal control perspective, 
and in an effort to better utilize the relative comparative capabilities of the various agencies of 
the federal government, would it not make more sense to have the Treasury Department 
administer the supply aspects of the scheme (including the auction and strategic reserve fund 
management) and leave the demand aspects (measurement, true up, etc) to the EPA? 

Administrator Jackson Response: 

EPA has a strong record of efficiently administering the Acid Rain program. In addition to 
allocating allowances to each generating unit, EPA has conducted small annual, revenue-neutral 
allowance auctions since 1993. Auctioned allowances are acquired by the EPA holding back 
approximately 2.8% of the allowances issued to each unit. Each unit in turn receives a pro rata 
share of the auction proceeds. The Chicago Board of Trade (CBOT) ran the auctions for the first 
13 years and then decided not to run them any longer. EPA has successfully run the auctions 
since then . 

During the 2009 auction EPA inadvertently posted the incorrect 7-Year Advance Auction results 
at 12:00 noon on March 24, 2009. The incorrect results were corrected as soon as possible on 
the same day and resulted from a typographical error on our part in entering data from a bid form 
submitted for the auction. EPA is improving the auction format and will use electronic bidding 
in the future, which should preclude data entry errors. EPA has not been using electronic 
bidding in auctions of Acid Rain Program allowances because the number of allowances 
auctioned and number of bids received (never exceeding about 200 bids) have been relatively 
small and manageable, using a manual system. 

Ultimately, it is up to Congress to determine who should administer the auction under any future 
energy and climate legislation. 


24. Both H.R. 2454 and S. 1733 do not give allowances “Property Rights’* legal status, which 
would afford holders the same constitutional protections against a taking as all other property. 
The concept of not giving allowances property rights legal status is the same concept used under 
the existing Title IV allowance trading program implemented as part of the Amendments to the 
Clean Air Act of 1990. However, under that program, most allowances (approximately 98%) are 


11 



211 


allocated at no cost to sources. Under the currently contemplated trading scheme, no cost 
allocation is quickly phased out over time and in the not too distant future sources will need to 
purchase allowances. Why are allowances not given property rights legal status? Isn’t the 
program's success contingent on market participants’ confidence in the government’s continued 
commitment to the program? Does the lack of property rights impair the value of the allowance 
and/or provide sources with a disincentive to use allowances as part of their long term 
compliance plan? 

Administrator Jackson Response: 

Title IV of the existing Clean Air Act, like H.R. 2454 and S. 1733, specifies that allowances are 
not property rights. This provision was inserted to ensure that EPA can require additional, 
appropriate emission reductions without those actions being deemed “takings” as a matter of 
constitutional law. 


25. Section 163 would require the EPA Administrator, or other agency head or heads 
designated by the President, to promulgate regulations establishing building code energy 
efficiency targets by January I, 2014. Does the EPA have the resources and technical 
knowledge of residential and commercial energy codes necessary to meet this target date? Is the 
EPA prepared to take on the responsibility of establishing national energy efficiency building 
codes? Under current law, the DOE is charged with making determinations on national model 
energy codes and participates in the development of those codes. How does the EPA view the 
requirements of Section 163 interacting with the DOE’s current responsibilities in the 
development of national model energy codes? 

Administrator Jackson Response: 

Section 163 of S. 1733 is similar to Waxman-Markey Title II, Subtitle A, Section 163, which 
directs EPA to establish building code energy efficiency targets for the national average 
percentage improvement of buildings' energy performance. A key difference between the S. 

1 733 and Waxman-Markey provisions is that the S. 1733 provisions direct EPA or such other 
agency head or heads as the President designates, to develop building code energy efficiency 
targets in consultation with NIST. In contrast, the Waxman-Markey provisions direct DOE to 
establish building energy codes. 

EPA will take on the responsibilities it is assigned in any enacted statute. Both EPA and DOE 
have experience and expertise in advancing energy efficiency measures for buildings and 
promoting the adoption of building codes (currently building codes are established in a voluntary 
consensus-based process). I am confident that EPA and DOE would work together to implement 
effectively any responsibilities assigned to the respective agencies by statute. Both agencies also 
would consult with NIST, which works closely with standards code organizations to develop 
roadmaps and the standards that industry accepts through the voluntary consensus process. 


12 



212 


26. Administrator Jackson, at the hearing today, you outlined three principles with regard to 
preemption of the federal Clean Air Act (CAA), suggesting that not all of the provisions of the 
Act should be preempted if comprehensive climate change legislation is enacted. Please provide 
a comprehensive list of those provisions of the CAA that you believe should be preempted in 
legislation such as S. 1 733 and HR 2454 and those provisions that you believe should not be 
preempted. 


Administrator Jackson Response: 

1 currently do not have a comprehensive list in mind. EPA has begun to take action under CAA 
Title 11 to set vehicle greenhouse gas standards, and both H.R. 2454 and S. 1 733 call for EPA to 
set standards under existing Title II authorities for other types of transportation sources. It will 
be important to consider each Clean Air Act tool in turn in deciding whether and how these tools 
can make a useful and efficient contribution to greenhouse gas reductions in the context of 
climate change programs being crafted by Congress. Having said this, the President has made 
clear that the problem of climate change is best addressed through comprehensive energy and 
climate legislation, and he strongly supports passage of such a bill. I look forward to working 
with the Committee on these issues. 


27. Do you support full preemption of other federal statutes, such as the Clean Water Act and 
the Endangered Species Act with regard to the potential regulation of GHG emissions due to the 
potential impacts on species and water quality from changes in climate, ocean acidification and 
coral bleaching? 

Administrator Jackson Response: 

1 currently do not have a position on that issue. 1 understand the importance of considering the 
ongoing role of these statutes as Congress considers comprehensive climate change legislation, 
and would welcome discussing the issue with the Committee. 


28. HR 2454 proposes to preempt several provisions of the CAA, including part C of title I, 
section 112, section 108, section 1 15, and Title V. On balance, these provision should reduce the 
cost of HR 2454 compared to S 1733. Please provide an estimate of the regulatory costs of 
proceeding with these CAA programs if no legislation is enacted. Please explain how the 
inclusion of provisions preempting these sections of the CAA would affect the overall cost of the 
legislation. 

Administrator Jackson Response: 

The regulatory cost of proceeding under the Clean Air Act authorities you reference would 
depend, among other things, on the particular provisions of any specific rules EPA issued 
pursuant to those authorities. EPA has proposed a rule under part C of title 1 and Title V to focus 
the permit programs those provisions establish on the largest sources of greenhouse gases. We 


13 



213 


provided an economic analysis of the proposed rule in the draft regulatory impact statement 
accompanying the proposal. Since there are no EPA proposals under the other authorities you 
cite, we have not developed information concerning the possible regulatory costs of such 
programs. 

29. Both HR 2454 or S 1733 propose to require oil refiners to purchase allowances for all 
GHG emitted at the refinery during production as well as all GHG emitted from combusting the 
fuel in vehicles. This will raise the cost of gasoline and diesel fuel. Neither HR 2454 nor S 1766 
proposes to preempt preemption section 2 1 1 (c) of the CAA that provides EPA with authority to 
regulate fuels. Please tell the Committee why the price signal created from the increased cost of 
fuel and the inclusion of GHG emissions from the combustion and process of fuel under the 
economy wide cap is not sufficient in of itself to force changes in the production and 
consumption of fuel in the most cost-effective manner possible. 

Administrator Jackson Response: 

EPA’s recent analysis has shown that refiners' obligation under the cap would raise gasoline 
prices $0.25 in 2030 and $0.69 in 2050(in real 2005 dollars) — increases smaller than the 
fluctuations in gasoline prices seen in recent years. This small, indirect price signal on 
transportation fuel from the cap alone may not achieve a large-scale transformation in the 
transportation system. Complementary policies, such as the proposed GHG rule for passenger 
vehicles, give greater impetus to ensure ongoing development of technological innovations for 
new vehicles, lower carbon fuels, improvements to the existing fleet, and VMT reductions. The 
benefits of such an approach go beyond climate change mitigation and offer energy security 
benefits as well 


30. On September 15, 2009 EPA signed a proposal to reduce GHG emissions from motor 
vehicles under section 202 of the CAA. On October 27, 2009, EPA proposed a "Tailoring Rule” 
in an attempt to limit the impact of the final mobile source rule (based on EPA's interpretation) 
on triggering stationary source requirements for 40,000 sources under the PSD preconstruction 
permit program and 6 million sources under the title V permit program. In the proposed 202 
rule, EPA omitted any full discussion of the potential stationary source regulations that will 
occur when the rule is finalized. Similarly, in the proposed Tailoring Rule, EPA notes that the 
rule “does not impose economic burdens” and should be viewed “as regulatory relief for smaller 
GHG emission sources when the light-duty vehicle rule is promulgated.” 

a. Given EPA’s view that the final section 202 motor vehicle rule will impose 
significant if not unworkable economic burdens on millions of stationary sources, 
why did EPA fail to present a full accounting of these stationary source impacts in the 
proposed light-duty motor vehicle rule when the Agency believes that the rule will 
automatically trigger these requirements? 


14 



214 


Administrator Jackson Response: 

In the notice of the proposed vehicle rule, EPA included all of the analysis that the Clean 
Air Act and Executive Orders direct EPA to include in such a proposal. EPA will 
carefully review all of the public comments it receives in response to the proposal. 


b. Why did EPA fail to conduct a regulatory flexibility analysis as required under 
the Regulatory Flexibility Act knowing that a final rule would affect millions of 
smaller sources? 

Administrator Jackson Response: 

EPA addressed the requirements of the Regulatory Flexibility Act (RFA) with respect to 
the proposed section 202 rule in the preamble of the proposal. For the reasons stated 
there, the Agency concluded that no additional RFA analysis was needed. 

In the 202 proposal, EPA also acknowledged that small entities might have concerns 
about the potential impacts of the statutory imposition of Prevention of Significant 
Deterioration (PSD) permit requirements that might occur given EPA’s various GHG 
rulemaking efforts. As the potential burdens of such stationary source regulation are 
being addressed in the tailoring rule proposal, EPA explained that it was “using the 
discretion afforded to it under section 609(c) of the RFA to consult with OMB and SBA, 
with input from outreach to small entities, regarding the potential impacts of PSD 
regulatory requirements that might occur as EPA considers regulations of GFIGs’' as part 
of the tailoring rule package. EPA will continue to assess any potential PSD impacts on 
small entities as we consider comments from the various rulemaking packages and 
conduct our outreach. 


c. Similarly, why did EPA fail to include the impacts on stationary sources when it 
submitted its benefit cost analysis required under Executive Order 12866? 

Administrator Jackson Response: 

EPA has taken the steps that Executive Order 12866 requires EPA to have taken by this 
point. For the proposed tailoring rule, EPA completed a regulatory impact analysis (RIA) 
that estimates the cost savings to sources and permitting authorities that would be 
achieved by the rule. The public has the opportunity to comment on this analysis along 
with the proposed rule itself, and we will carefully consider the comments we receive. 


d. How can sources meaningfully participate and comment on impending regulatory 
requirements without the inclusion of a full analysis of the likely burdens and the 
underlying statutory and regulatory authorities triggering those requirements? 


15 



215 


Administrator Jackson Response: 

As noted above, the public has an opportunity to review and comment on the RIA that we 
prepared for the proposed tailoring rule. More generally, EPA has and will continue to 
provide potentially affected sources with an opportunity to comment on any rulemaking 
that EPA proposes, including outreach to small entities coordinated in consultation with 
SBA. 


e. Given this gap and the likelihood that millions of sources will be impacted 
without ever having been afforded an opportunity to comment on a full analysis of the 
burden in the context of the rulemaking imposes this burden, shouldn’t EPA 
withdraw the 202 proposal and reissue it with a full analysis of expected impacts as 
required by law. 

Administrator Jackson Response: 

I do not believe that EPA should withdraw the proposed section 202 proposal. The 
proposed tailoring rule addresses how sources might be impacted and provides the public 
with an opportunity to comment on focusing the application of the Clean Air Act 
permitting programs with respect to greenhouse gases on the largest sources of those 
pollutants. EPA will review and carefully consider any public comments filed on the 
proposals. 


31. What portion of the proposed GHG emission reductions from the combined DOT and 
EPA rules would the EPA proposed section 202 produce compared to the reductions anticipated 
under the DOT rule? 

Administrator Jackson Response: 

For several reasons, the estimates of benefits and costs presented by EPA and NHTSA, while 
consistent, are not directly comparable and should not be expected to be identical. However, the 
CAA standards provide significant additional C02 benefits. EPA estimates that the proposed 
GHG standards will result in a reduction of 947 million metric tons of C02 from the 2012-2016 
vehicles over their lifetime. DOT has estimated that the CAFE program alone will result in a 
reduction of 639 million metric tons of C02. 


a. Could EPA realize some of the expected GHG emission reductions from HFC 
control through Title VI authorities rather than section 202? 

Administrator Jackson Response: 

EPA views this proposed rule as complementing the Title VI programs, and not 
conflicting or overlapping with them. To the extent that manufacturers choose to 


16 



216 


reduce refrigerant leakage in order to earn air conditioning leakage credits, this would 
dovetail with the Title VI section 609 standards which apply to the servicing of motor 
vehicle air conditioning systems (MVACs), and to end-of-vehicle life disposal. In 
fact, a benefit of the GHG rule’s proposed A/C credit provisions is that there should 
be fewer and less impactive maintenance events for MVACs, since there will be less 
leakage. EPA also believes the menu of leak control technologies proposed in the 
GHG vehicle rule would complement the section 612 requirements (pertaining to 
EPA's review of substitutes for ozone depleting substances that reduce the overall 
risks to human health and the environment), because these control technologies would 
help ensure that R134a or other refrigerants would be used in a manner that further 
minimizes potential adverse effects on human health and the environment. 

b. Isn’t true that EPA is not under a court deadline to issue the 202 rule and has the 
discretion to hold back the section 202 rule and let the DOT rule go forward alone? 

Administrator Jackson Response: 

Proposal of the section 202 rule is part of EPA’s effort to expeditiously respond to the 
Supreme Court’s 2007 decision in Massachusetts v. EPA. We note that the Supreme 
Court directly addressed the issue of whether DOT regulations are sufficient to 
absolve EPA of its mandate; specifically the court finding stated “ that DOT sets 
mileage standards in no way licenses EPA to shirk its environmental responsibilities. 
EPA has been charged with protecting the public's “ health " and "welfare, " 42 U. S. C. 
§7521(a)(1), a statutory obligation wholly independent of DOT'S mandate to promote 
energy efficiency." While EPA is not under a court deadline to issue the GHG vehicle 
proposal, the goals of the National Program rely on a joint EPA/NHTSA program. 
This joint proposal offers the prospect of important regulatory convergence and 
certainty to automobile companies. If EPA were to further delay its proposal, there 
could be separate federal and state regimes independently regulating light-duty 
vehicles to reduce fuel consumption and GHG emissions; NHTSA’s CAFE 
standards, and the GHG standards applicable in California and other states adopting 
the California standards. This joint proposal would allow automakers to meet both 
the NHTSA and EPA requirements with a single national fleet, greatly simplifying 
the industry's technology, investment and compliance strategies. Many of the world’s 
largest auto companies have stated their support for this joint proposal. In addition, 
California’s commitment to defer to the federal program is also conditioned on EPA 
adopting GHG standards of this type. 


c. Wouldn’t at least a temporary delay in issuing the section 202 rule make sense 
given the state of the economy and the significant and immediate impact it is likely to 
have on stationary sources, job creation, and the economy? Wouldn’t additional time 
make sense given the time needed for Congress to carefully deliberate on 
comprehensive GHG legislation? 


17 



217 


Administrator Jackson Response: 

Our response to your concerns about stationary source regulation is provided in 
answer to question 30 above. The benefits of the proposed section 202 rule are 
substantial. The proposed National Program would result in approximately 950 
million metric tons of total carbon dioxide equivalent emissions reductions and 
approximately 1.8 billion barrels of oil savings over the lifetime of vehicles sold in 
model years 2012 through 2016. In total, the combined EPA and NHTSA 2012-2016 
standards would reduce GHG emissions from the U.S. light-duty fleet by 
approximately 21 percent by 2030. The estimated benefits of the proposed National 
Program would total about $250 billion (at a 3% discount rate). In addition, the joint 
GHG/CAFE proposal has significant economic benefits for American consumers. 
Consumers would save more than $3,000 as a result of fuel savings over the lifetime 
of a model year 2016 vehicle. Finally, EPA believes that the proposed GFIG vehicle 
standards would complement comprehensive climate legislation. 


32. Many companies producing products have had to shut down facilities and 

production lines given the economic recession and the reduced demand. If at some later 
point, the economy recovers and these sources decide to restart production two years after 
stopping, would they trigger PSD if GHG emission levels increase above the proposed 
significance levels? If so, would these sources then have to wait 1 8 months if not longer to 
receive a permit and install BACT before beginning operation? 

Administrator Jackson Response: 

EPA has policies in place to handle these sorts of situations. These evaluations are done 
based on the individual circumstances of each case. 


33. In issuing the proposed Tailoring Rule, EPA relies on the legal argument of 

administrative necessity in circumventing the statutory thresholds of 1 00 and 250 tons 
depending on source category. 

a. What other agencies inside the Administration reviewed this legal theory? Please 
provide copies of their comments. 

Administrator Jackson Response: 

EPA has not proposed to circumvent any statutory requirements. As I stated 
earlier, I believe the proposed rule is legally sound. The proposed rule was 
subject to the interagency review process, so numerous agencies had an 
opportunity to review the rule, including its legal basis. As required by the Clean 
Air Act, EPA has included in the public docket for the proposed rule the 
comments submitted by other agencies during the interagency review process. 
The link to the electronic docket is 


18 



218 


http://www.regulations.gOv/search/Regs/home.html#home . When the page opens, 
please enter in the 'Enter Key Word" box docket # EPA-HQ-OAR-2009-0517. 


b. Based on prior NSR rulemakings and legal precedents, if the Tailoring Rule is 
vacated, would the 100/250 ton statutory thresholds be retroactively applicable? 
Would a significance level of zero emission increase be retroactively applicable 
for modifications as well if the Tailoring Rule is vacated? Does this mean that 
any modification at facilities with a potential to emit of 1 00 or 250 tons would 
trigger PSD and BACT if it causes a net increase in GHG emissions? 

Administrator Jackson Response: 

While there is caselaw that suggests vacaturs can apply retroactively, a court may 
decide not to vacate a rule, and instead to remand it, in light of the potential 
impacts. In that case, the rule would remain on the books until revised. 

Moreover, in certain circumstances, even when vacating a rule, the court may 
retain the ability to fashion equitable relief, so that the vacatur would not apply 
retroactively. EPA believes that a reviewing court would find the tailoring rule, if 
adopted, legally sufficient, and that if the court held to the contrary, it would not 
find those numerical thresholds retroactively applicable in that situation. 


34. Earlier this month, the press reported that Judge David Tatel of the U.S. Circuit Court of 
Appeals for the District of Columbia warned agencies that fail to follow federal statutes. He is 
quoted in the press as saying: "It looks for all the world like agencies choose their policy first 

and then later seek to defend its legality This gets it entirely backwards It's backwards 

because whether or not agencies value neutral principles of administrative law, courts do, and 
they will strike down agency action that violates those principles - whatever the president's 
party, however popular the administration, and no matter how advisable the initiative." Do the 
Judge’s comments and the sentiments expressed in those comments have any bearing on EPA’s 
proposed legal argument with regard to the proposed Tailoring Rule? 

Administrator Jackson Response: 

The D.C. Circuit’s decisions on EPA interpretation of the Clean Air Act obviously have a 
bearing on EPA’s interpretation of the Clean Air Act regarding any rule that EPA issues under 
that statute. Presumably, Judge Tatel’s remarks reflect cases in which he served on the judicial 
panel reviewing final EPA actions under the Clean Air Act. 1 am not aware that Judge Tatel has 
yet served on a judicial panel that has issued a decision on a final agency action that EPA has 
taken under the Clean Air Act during the current Administration. 


a. If, as some suggest, reliance on the doctrine of Administrative Necessity is legally 
precarious given the emission threshold that are written in the statute, isn’t EPA 
needlessly placing millions of small businesses at economic risk (for costly controls 


19 



219 


and permit delays) by issuing a final section 202 rule when it has the discretion to 
wait? 

Administrator Jackson Response: 

1 believe the proposed tailoring rule is legally sound. As explained in the preamble to 
the proposed rule, its legal foundation relies on two lines of cases, the absurd results 
cases and the administrative necessity cases. Both lines of cases include precedents 
by the D.C. Circuit. See 74 Fed. Reg. at 55,306 (absurd results caselaw), at 55,316 
(administrative necessity caselaw). As a result, we do not believe that we are placing 
small businesses at risk. 


35. Concerning your June 2009 analysis of the Waxman-Markey Bill, please answer the 
following: 


a. Why does your data annex file (“HR.2454 EPA Data Annex - ADAGE & IGEM 
v.2. 3.xls”) not include figures from all 7 scenarios? 

Administrator Jackson Response: 

The data annex file “HR.2454 EPA Data Annex - ADAGE & IGEM v.2.3.xls” does 
include data from all 7 scenarios. It should be noted that the two models, ADAGE 
and IGEM, were not each run for each of the 7 scenarios. Data is provided from the 
ADAGE model for scenarios 1, 2, 3, 4, 5 and 6. Data is provided from the IGEM 
model for scenarios 1 , 2, and 7. 


b. Please provide figures for 1) electricity price, 2) gasoline price and 3) natural gas 
price under the reference and policy case scenarios (including scenario #7) for the 
years in the range of the program. 

Administrator Jackson Response: 

The data annex file “HR.2454 EPA Data Annex - ADAGE & IGEM v.2. 3.xls” all 
relevant energy price information from the ADAGE model for scenarios 1 - 6. 
Scenario 7 was only run in the IGEM model, which does not produce this specific 
energy price information. 


c. Please elaborate on why you include the net present value calculation for 
consumption loses (p. 13). 


20 



220 


Administrator Jackson Response: 

The net present value calculation for consumption losses is one of several different 
ways we present consumption loss impacts. The net present value consumption loss 
calculation is comparable to the net present value consumption loss calculation 
presented in MIT's analyses of climate policy. 


d. Please respond with consumption losses for all scenarios, including scenario 7, in 
net present value and straight consumption loss per Household. 

Administrator Jackson Response: 

This information is presented on slide 62 of the appendix to EPA’s analysis of H.R. 
2454. 


e. You report says the "average annual NPV cost per Household” is $80-$ 1 11, (p. 
13) Does this figure represent how much money would need to be put aside today 
to meet an average year's obligation? If so, is it far to say a household would 
have to put aside $80 to $1 1 1 for each year of the program today in order to make 
up for consumption loses over the duration of the program? 

Administrator Jackson Response: 

The net present value of the consumption loss in a future period calculates the 
consumption loss today that would be equivalent to the consumption loss estimated 
for a future period. For example, as shown in table 4 of EPA’s analysis of S. 1733, in 
2020 H.R. 2454 would result in a consumption loss of $0.23 - $0.29 per day. The net 
present value of this loss in 2020 would be $0.13 - $0.16 per day. This means that a 
household would be indifferent between a consumption loss of $0.29 that happens in 
2020 and a consumption loss of $0.16 that happens today. 


f. Can you create a new '‘Consumption” slide that includes all scenarios, including 
scenario 7? (See p. 13 of your Waxman-Markey analysis.) 

Administrator Jackson Response: 

This information is presented on slide 62 of the appendix to EPA’s analysis of H.R. 
2454. 


Senator George V. Voinovich 

1 . I have been working with you and your agency, to ensure that your analyses of these 
climate bills includes cases that provide a look at possible costs associated with this bill - 


21 



221 


particularly if assumptions about technology adoption aren’t as rosy and optimistic as some 
would hope. Given that the EPA has not yet performed this analysis, how is it possible to believe 
that “a postage stamp a day” is the true cost of implementing this legislation? 

Administrator Jackson Response: 

EPA stands behind the methodologies and assumptions that the agency uses in order to model 
the economic impacts of energy and climate policies. EPA has always been and will remain 
transparent about the methodologies and assumptions that the agency uses. In particular, we 
examined the core features of both the House and Senate bills and found that the per-household 
costs were likely to be similar (about 30 cents a day) because of the close similarities in the core 
features of the bills. In addition, we examined alternative scenarios in our analyses that vary 
assumptions about technology adoption and acknowledge that the consumption impacts would 
be different (e.g., if there was no nuclear generation growth or no international offsets). 

2. The EPA’s base analysis of the Waxman-Markey Climate Bill assumes a 150% increase 
in nuclear generating capacity by 2050. That’s equivalent to bringing online about 150 new 
nuclear plants in the next 40 years. For someone who has been saying that “we can’t get there 
from here without nuclear”, I couldn’t be happier to hear that. However, I have a problem with 
that assumption. Given the current constraints in capital financing, licensing, manufacturing, and 
skilled work force for engineering and construction, 1 believe bringing 1 50 new nuclear plants 
online in the next 40 years is simply unrealistic. Additionally, your analysis shows 25 Gigawatts 
of CCS online by 2020, and a tenfold increase in biomass generation by 2050. So, could you 
please discuss the level of optimism you have in terms of actually seeing this level of adoption 
for these technologies? Have you had these assumptions peer-reviewed by other knowledgeable 
people at other government agencies or private industries? Aren’t there a host of environmental 
problems that would only be aggravated by a tenfold increase in biomass generation? 


Administrator Jackson Response: 

EPA’s analysis of H.R. 2454 does not assume a 150-percent increase in nuclear generating 
capacity by 2050. Rather, EPA’s analysis of H.R. 2454 projects a 1 50-percent increase in 
nuclear generating capacity by 2050, in response to the policies in H.R. 2454. In the longer term, 
we believe that nuclear power will be a cost-competitive source of emissions-free electricity 
under a cap and trade system. The 150-percent increase in nuclear generating capacity by 2050 
is a restriction on the amount of new nuclear capacity that the model is allowed to build. These 
restrictions are designed to reflect the technical and political feasibility of building new nuclear 
power plants. 

The assumed limitations on new nuclear capacity reflect the U.S. Climate Change Science 
Program Synthesis and Assessment Product 2. la (MiniCAM Level 1 Scenario), and the EPRI 
analysis “The Power to Reduce CO 2 Emissions: The Full Portfolio” (August 2007). When it 
comes to the nuclear industry, EPA uses the assumptions about the costs of nuclear power used 
by the Energy Information Administration. All of the assumptions that EPA uses have been 
through repeated rounds of inter-agency review. The non-governmental peer review that EPA’s 


22 



222 


methodologies and assumptions have been through is described in slides 16 - 1 8 of the appendix 
to EPA’s analysis of H.R. 2454. 

EPA recognizes that the actual degree of future expansion of any of the electricity-generating 
technologies in question depends not just on the economic incentives created by a policy such as 
H.R. 2454 or S. 1 733, but also on the presence or absence of constraints and incentives beyond 
the policy itself (administrative, political, etc.) that EPA’s computer models are not designed to 
detect. For that reason, EPA’s computer-modeling efforts include running the policy in question 
through the models under assumptions that the technologies in question do not deploy as much 
as would otherwise occur, irrespective of the economic incentives created by the policy under 
analysis. In that regard, my staff has made an offer to yours regarding additional scenarios with 
additional pessimistic assumptions that EPA could include in any future computer-modeling 
analysis of policies such as H.R. 2454 and S. 1733. 


Senator David Vitter 

1 . Administrator Jackson, I want to thank you for your candor in answering my letter of July 
15. As you said in your response EPA has no analysis of the plausible emissions 
scenarios for the G-5 developing countries and Russia. Neither do you have the global 
C02 equivalent concentration scenarios necessary to evaluate the impact of S 1733. 

Based on your comments I have approached Dr. Leon Clarke with the Joint Global Change 
Research Institute to see whether he had any data available from his studies. He seems to 
have the same problem responding that the Department of Energy has. 

My request is that you provide detailed modeling of the plausible scenarios of emissions 
based on the cases I outlined in my letter of July 1 5 so that we have this information before 
we mark up this bill. This analysis should conform to the July 2013 requirements stipulated 
in Section 705. Can you ensure this modeling is prepared and submitted to Congress in a 
timely manner? 

“SEC. 705. REVIEW AND PROGRAM RECOMMENDATIONS, “(a) IN 
GENERAL. — The Administrator shall, in consultation with appropriate Federal agencies, 
submit to Congress a report not later than July 1, 2013, and every 4 years thereafter, that 
includes — 

Page 436 

“(2) whether United States actions, taking into account international actions, commitments, 
and trends, and considering the range of plausible emissions scenarios, are sufficient to 
avoid — “(A) atmospheric greenhouse gas concentrations above 450 parts per million carbon 
dioxide equivalent; “(B) global average surface temperature 3.6 degrees Fahrenheit (2 
degrees Celsius) above the pre-industrial average, or such other temperature thresholds as the 
Administrator deems appropriate; and “(C) other temperature or greenhouse gas thresholds 
identified pursuant to subsection (c)(6)(B). 


23 



223 


Administrator Jackson Response: 

As stated in EPA’s October 23 report, the agency does have a basis for evaluating the impact 
of policies like S. 1733, combined with actions by other governments, on global CO 2 - 
equivalent concentration levels and global average temperature rise. Please see pages 25-28 
of EPA’s October 23 report. 

2, I assume that you have read the bill. Section 707 suggests that by July 1, 2015 the 
President will direct all agencies to take additional actions to reduce emissions. 

What additional actions could EPA take to further reduce emissions and under what 
authority? 

Administrator Jackson Response: 

It is premature to describe exactly what additional actions EPA may take until such an 
analysis is conducted. However, we note that EPA has had successes achieving emissions 
reductions through voluntary programs that could be applied to uncapped sources. 

Wouldn 7 EPA have the authority to void any of the emissions credits under this provision ? 
Page 422 

“SEC. 707. PRESIDENTIAL RESPONSE AND RECOMMENDATIONS. 

“Not later than July 1, 2015, and every 4 years thereafter — “(1) the President shall direct 
relevant Federal agencies to use existing statutory authority to take appropriate actions 
identified in the reports submitted under sections 705 and 706 and to address any shortfalls 
identified in such reports; 

Administrator Jackson Response: 

No, that is not our interpretation. Section 707 refers only to use of existing authorities. 
Nothing in the language of section 707 establishes authority to void emission credits. 


3. Section 744 indicates that EPA will allow' international offsets only from countries that . 
comply with certain guidelines. If a country has not taken on legally binding and 
verifiable commitments, then it appears that the offsets will be disallowed. If China and 
India have not entered into such agreements, 1 assume that any offsets from those 
countries would not be available. What assumptions did EPA make about offsets from 
specific countries in its analysis ofSl 733/HR 2434? 

Sec 744 International Offset Credits. Page 564 (2) REQUIREMENTS FOR 
INTERNATIONAL OFFSET CREDITS. — The Administrator may issue international offset 
credits only if — “(A) the United States is a party to a bilateral or multilateral agreement or 
arrangement that includes the country in which the project or measure achieving the relevant 
greenhouse gas emission reduction or avoidance, or greenhouse gas sequestration, has 
occurred; “(B) such country is a developing country; 


24 



224 


Administrator Jackson Response: 

Pages 8 and 9 of EPA's S. 1733 analysis describe the construction of the international offset 
marginal abatement cost curves used in EPA’s analysis of H.R. 2454. These assumptions are 
further detailed in the EPA’s March 26, 2007 memo to EIA, “EPA S.280 mitigation cost 
schedules for capped sectors and domestic and international offsets,” which is available as 
part of the data annexes of all of EPA’s analyses of legislative climate proposals. EPA made 
differing assumptions about which sources are eligible to provide abatement to the 
international market depending on whether or not it was from a country with a binding cap 
on emissions. EPA did not make any assumptions about specific bilateral or multilateral 
agreements. Pages 20-21 of EPA’s analysis of S. 1733 discuss the important sensitivities 
on international offset availability that have been run by EPA and others. 


4. Administrator, on October 1 3th, 1 wrote to request the results of your continuing Section 
321(a) evaluation of potential loss or shifts of employment which may result from the 
suite of regulations EPA has proposed or finalized that address greenhouse gases under 
provisions of the Clean Air Act, including threatened plant closures or reductions in 
employment that may result from the administration or enforcement of such regulations. 

As you know, Section 321(a) of the Act (42 U.S.C. § 7621(a)) states: 

Continuous evaluation of potential loss or shifts of employment. The Administrator shall 
conduct continuing evaluations of potential loss or shifts of employment which may result 
from the administration or enforcement of the provision of this chapter and applicable 
implementation plans, including, where appropriate, investigating threatened plant closures 
or reductions in employment allegedly resulting from such administration or enforcement. 

I was wondering if you might tell me the status of your analysis per my request? 

Administrator Jackson Response: 

On October 26, 2009, EPA transmitted to your office the agency’s response to your letter of 

October 13. 


Senator John Barrasso 

1. CBO Director Dr. Elmendorf stated that if we enacted this energy tax the fossil fuel 
sector would mirror the massive job losses experienced by the manufacturing industry 
since the 1970s. 

a. What part of the Boxer-Kerry bill do you believe avoids turning fossil fuel 

dependent communities of the West, Midwest and South from becoming the rust 
belt of the 2 1 rst Century? 


25 



225 


Administrator Jackson Response: 

I do not believe that CBO Director Elmendorf s testimony included the statement that 
you attribute to him. 1 do read Director Elmendorf s testimony to make two points. First, 
over time, legislation like S. 1 733 would shift a significant amount of US jobs from high- 
emitting industries - such as oil refineries and conventional coal-fired power plants - to 
low-emitting industries - such as cellulosic biorefineries and advanced coal plants with 
carbon capture and sequestration. This Administration does want to make clean energy 
the profitable kind of energy in this country. We want to promote US industry and jobs 
over the long term by putting those industries at the forefront of the burgeoning global 
marketplace in clean-energy technologies. 

Director Elmendorf s second point was that if the shift occurs too abruptly, then high- 
emitting industries and their employees might not have enough time to adjust. That is the 
point the behind an emissions cap that starts now, at a modest level, and then declines 
smoothly and gradually over time. If we waited much longer to start, then the transition 
would be abrupt. We need to start now, so that the transition need not be abrupt. 
Preventing an abrupt transition could also be a rationale for some of the transitional free 
allowances - such as for energy-intensive industries, coal-fired utilities, and the like - 
that you see in S. 1733. 

1 believe that S. 1733 and H.R. 2454 have been crafted to avoid the negative outcome that 
you describe. 


2. Do you believe it makes sense for Washington to pass a cap and trade bill to make 
everything American’s buy more expensive, and increase energy costs for low and 
middle income folks, and then devise a government bureaucratic “food stamp” like 
system to monthly compensate these households for the higher costs that were imposed 
upon them? 

Administrator Jackson Response: 

Analyses of S. 1733 indicate that costs are modest. However, its important not to lose 
sight of the fact that the bill would create, for the first time, a system of incentives to 
make clean energy the profitable kind of energy. Furthermore, what the analysis does not 
provide is the economic losses that may be avoided by reducing the risk that we will 
experience the most catastrophic impacts of climate change. 


Senator Lamar Alexander 

1 . I have looked through the EPA produced document entitled “Economic Impacts of S. 

1 733: The Clean Energy Jobs and American Power Act of 2009” that was released to the 
public last Friday evening. 

a. Can you tell me the number of jobs created or lost by this bill? Does this include 
information on which sectors or industries will gain or lose jobs due to this bill? 


26 



226 


Administrator Jackson Response: 

EPA’s economic computer models are not designed to project precise numbers of jobs 
gained or lost, either in the aggregate or in particular industries. Data and model 
limitations make it very difficult to estimate any labor market changes that might occur 
with any degree of accuracy. This is especially true considering that labor markets are 
primarily influenced by factors including routine business cycles, changes in production 
technology, and the state of the economy overall. No modeled job-related outputs appear 
in any of the computer-modeling reports that EPA provided on the Lieberman- Warner 
bill, the Bingaman-Spectcr bill, or the Waxman-Markey bill. Therefore EPA’s October 
23 analysis does not describe any such outputs. 

b. What is the effect of the bill on the nation’s GDP? 

Administrator Jackson Response: 

GDP would continue to grow' if S. 1733 were enacted. EPA’s computer models actually 
overestimate the negative impact on US GDP growth of a policy such as S. 1733, because 
the models are not designed to project and reflect the beneficial impacts on GDP growth 
of avoiding catastrophic climate change. Even with that being the case, the models 
project that the rate at which US GDP would grow under a policy like S. 1733 would be 
imperceptibly slower than in the absence of the policy. Indeed, the difference in the 
projected growth rate is so small as to fall well within the historical margin of error in 
GDP growth projections. 


c. What is the effect on the price of gasoline and diesel fuel? 

Administrator Jackson Response: 

EPA's computer models project that each dollar in the price of an emission allowance 
would cause the price of a gallon of gasoline or diesel to be approximately one cent 
higher than in the absence of the program, all else being equal. 


2. The document states that the impacts of this bill would be “similar” to those estimated for 
the House-passed Waxman-Markey climate change bill. What exactly does that mean 
with reference to the costs to the average American family? 

Administrator Jackson Response: 

ft means that the cost to consumption of the average American household would start out 
at just a few cents a day and would be up to only about 30 cents a day by 2020. 


3. What docs this document say about the mix of electricity sources we are likely to have in 
2020, 2030, and 2050? How many new nuclear plants will be built? How many new 


27 



227 


Administrator Jackson Response: 

The analysis that EPA completed on October 23 indicates that the projections that EPA 
made for H.R. 2454 are applicable to S. 1 733 as well. In short, the projections are that 
for each of the following electricity sources - nuclear power, wind power, solar power, 
and coal with carbon capture and sequestration - the percentage of total U.S. electricity 
generated by that source by 2020, by 2030, and by 2050 would be higher in the presence 
of a policy like H.R. 2454 and S. 1733 than in the absence of one. The percentage also 
gets larger with time (i.e., the percentage is larger in 2030 than in 2020 and much larger 
in 2050 than in 2030). The opposite is the case with respect to natural gas by the last two 
decades of the program. 


4. If the EPA’s best efforts to quantify the effect of this proposed legislation as the title of 
this document clearly implies... “Economic Impacts of S. 1733: The Clean Energy Jobs 
and American Power Act of 2009” can’t actually answer any of these questions then what 
other analysis is required to find these answers? Is further analysis from the EPA 
required? What other experts, such as the CBO, would you recommend we consult? 

Administrator Jackson Response: 

As noted in the responses above, the analysis that EPA completed on October 23 does 
provide answers to questions you have posed. EPA developed the S.1733 analysis based 
on synthesizing the results of nearly 50 modeling scenarios of five bills over the past two 
years. As we noted in the October 23 ,d paper, because of the many similarities between 
H.R. 2454 and S. 1 733 and the relatively small differences between the two bills, we 
expect that S. 1733 would have economic impacts very similar to H.R. 2454. 


28 



228 


Senator Boxer. Thank you so much, Administrator Jackson. 

And our last witness is Hon. Jon Wellinghoff, Chairman of the 
Federal Energy Regulatory Commission. Welcome. 

STATEMENT OF HON. JON WELLINGHOFF, CHAIRMAN, 
FEDERAL ENERGY REGULATORY COMMISSION 

Mr. Wellinghoff. Thank you, Madam Chairwoman Boxer, 
Ranking Member Inhofe and members of this committee. Thank 
you all for inviting me here today to speak about a very important 
subject. 

First, I want to commend Chairwoman Boxer and Senator Kerry 
for this undertaking and offer the support and assistance of my 
agency to further your effort here today. 

I would like to submit my prepared testimony for the record and 
I will highlight a few points of my testimony. 

Senator Boxer. Without objection. 

Mr. Wellinghoff. Thank you. 

The Federal Energy Regulatory Commission seeks to assist en- 
ergy consumers in obtaining reliable, efficient, sustainable energy 
services at a reasonable cost through appropriate regulatory and 
market means. Toward that end, the Commission is removing bar- 
riers to the use of low carbon renewable resources and encouraging 
greater efficiency in the electric energy system. These efforts and 
the efforts by many States are helping to reduce the emissions pro- 
duced by the generation of electricity. 

Our Nation, however, has the capability to reduce these emis- 
sions much, much more. A major reason why low carbon renewable 
resources and energy efficiency are not used more extensively is 
that the cost of greenhouse gas emissions is, in economic terms, an 
externality. In other words, the effects of these emissions is not re- 
flected in the price of energy in the marketplace. S. 1733 would 
change the situation by recognizing in the energy marketplace the 
effect of greenhouse gases. And I would note that this concept of 
internalizing these external costs has bipartisan support at my 
Commission. 

Renewable resources cannot only help reduce greenhouse gas 
emissions but also diversify the fuels used to generate electricity. 
Fuel diversity helps stabilize our electric supply against shortages 
or price spikes in particular fuel markets. Using domestic energy 
instead of foreign energy also strengthens our national security. 

This month, I provided the Congress with the Commission’s stra- 
tegic plan for the next 5 years. In that document, we committed to 
take additional steps to address possible barriers to more extensive 
use of renewable energy resources and distributor resources in en- 
ergy markets, thus allowing for markets to operate more efficiently, 
reduce carbon and reduce costs to consumers. 

But a significant expansion of renewable resources in our elec- 
tricity supply portfolio will require additional high voltage trans- 
mission facilities, network upgrades and feeder lines. I also note 
that the inter-regional transmission facilities necessary to deliver 
the output of certain renewable resources are unlikely to be con- 
structed without additional Federal authority in areas of planning, 
citing and cost allocation. 



229 


Consumer energy use management, also called demand response, 
refers to consumers reducing their usage at certain times to im- 
prove grid efficiency. In June, at the direction of Congress, the 
Commission issued an assessment of the potential for consumer en- 
ergy use management both nationally and for each State through 
2019. The assessment found that the potential of peak electricity 
demand reductions across our country is 188 gigawatts, or up to 20 
percent of the national peak demand. These savings, if realized, 
can significantly reduce the number of power plants needed to meet 
peak demand, and thereby reduce carbon emissions by as much as 
1.2 billion tons annually. 

As I indicated above, in the Commission’s new strategic plan, we 
commit to continue our efforts to identify and eliminate barriers to 
participation by demand resources in the Nation’s organized whole- 
sale electric markets. 

FERC is using its statutory authorities to aggressively eliminate 
barriers to renewable resources and distributor resources in whole- 
sale electric markets and to encourage greater efficiency in the 
electric system and thereby reduce carbon emissions. For such ef- 
forts to increase reductions in carbon and improve efficiency, sound 
energy policies must get the price in the markets right to achieve 
both our environmental and our economic energy policy goals. 

S. 1733 is the key to getting it right. I encourage you to pass this 
legislation. 

Thank you again for the opportunity to testify here today. I will 
be happy to answer any questions that you may have. 

[The prepared statement of Mr. Wellinghoff follows:] 



230 


Testimony of Jon Wellinghoff 
Chairman, Federal Energy Regulatory Commission 
Before the Committee on Environment and Public Works 
United States Senate 
October 27, 2009 


Introduction 

Chairman Boxer, Ranking Member Inhofe, and members of the Committee, thank 
you for the opportunity to speak here today. My name is Jon Wellinghoff, and I am the 
Chairman of the Federal Energy Regulatory Commission (FERC or Commission). My 
testimony addresses S. 1733, the Clean Energy Jobs and American Power Act, in the 
context of the energy industries. The Commission has regulatory authority over various 
aspects of these industries. The Commission seeks to assist energy consumers in 
obtaining reliable, efficient, and sustainable energy services at a reasonable cost through 
appropriate regulatory and market means. 

The Commission has taken various steps to remove barriers to the use of “low 
carbon” renewable resources and to encourage greater efficiency in the electricity system. 
These efforts, as described below, and the similar efforts of many States are helping to 
reduce the emissions produced by the generation of electricity. 

Our Nation, however, has the capability to reduce these emissions much more. 

For example, studies show a potential to develop hundreds of gigawatts of renewable 
energy resources by 2030, if we expand our infrastructure adequately. Similarly, a study 
issued this summer indicated that energy efficiency efforts by consumers could reduce 
our overall energy usage by nearly 25 percent. Moreover, this study did not consider the 



231 


- 2 - 

significant potential for improved efficiency on the utility side of the meter including the 
transmission system infrastructure under the Commission’s jurisdiction. 

A major reason why “low carbon” renewable resources and energy efficiency are 
not used more extensively is that the cost of greenhouse gas emissions is, in economic 
terms, an “externality.” In other words, the effect of these emissions is not reflected in 
the price of energy in the marketplace. 

S. 1733 can change this situation. This legislation is a way to recognize, in the 
energy marketplace, the effect of greenhouse gases. Doing so will encourage more 
energy efficiency and use of “low carbon” renewable resources, allowing us to reduce our 
greenhouse gas emissions while maintaining our quality of life. We have extensive 
amounts of untapped renewable resources and large potential to use energy more 
efficiently. S. 1733 will remove a major impediment to using those tools to this end. 

Renewable Resources 

Renewable resources can not only help reduce greenhouse gas emissions, but also 
diversify the fuels used to generate electricity. Fuel diversity helps stabilize our 
electricity supply against shortages or price spikes in particular fuel markets. Using 
domestic energy instead of foreign energy also strengthens our national security and 
reduces our economy’s vulnerability to the risk and volatility of imports. 

FERC has taken a range of actions to reduce barriers to renewable energy 
development and deployment. For example, the Commission has reformed transmission 
rates to exempt wind generators and similarly variable resources from certain penalties 
for deviating from their scheduled output, since these resources have only limited ability 



232 


-3- 

to control their output. FERC also recognized that its policy for allocating transmission 
interconnection costs can be a barrier to entry by location-constrained resources like 
many sources of renewable energy, so we allow variations from our historical policy for 
such resources. FERC also has approved incentives and other ratemaking policies to 
facilitate the development of transmission facilities needed for renewable resources, such 
as facilities to deliver wind power from the upper Midwest to consumers in Chicago and 
other cities, and from Montana and Wyoming to consumers in Nevada and other 
Southwestern states. In addition, the Commission is supporting efforts by regional 
transmission organizations (RTOs) and independent system operators (ISOs) to reduce 
their backlog of interconnection requests by planned generation projects, many of which 
are wind projects. 

This month, I provided Congress with the Commission’s Strategic Plan for 
FY2009-2014 and committed to take additional steps to address possible barriers to 
development of renewable resources. The Commission set a long-term goal of exploring 
and, as appropriate, implementing reforms to allow renewable resources to compete fairly 
in FERC-jurisdictional electric markets. These efforts could include, for example, 
changes to market rules, or the implementation of operational tools to support reliable 
integration of renewable resources. The Commission will seek input from the industry 
and the public and will change its regulations, as appropriate, to achieve this goal. 

A significant expansion of renewable resources in our electricity supply portfolio 
will require additional high-voltage transmission facilities, network upgrades, and feeder 
lines. It is highly unlikely that the inter-regional transmission facilities necessary to 



233 


-4- 

deliver the output of certain renewable resources will be constructed without additional 
federal planning, siting, and cost allocation authority. 

As to transmission planning, the Commission has adopted rules to improve 
transmission planning processes, such as having public utilities open their planning 
processes to developers of renewable resources and others. Congress has recognized the 
need for additional improvements, authorizing $80 million earlier this year for the 
Department of Energy, after consultation with FERC, to facilitate inter-regional planning 
efforts. Several other bills have been proposed in Congress this year to encourage or 
require inter-regional planning, and this type of legislation would be a step to ensuring 
the success of these efforts. 

As to transmission siting, I recognize and respect the long-standing role of the 
states in performing this function. Nonetheless, under limited and appropriate 
circumstances, transmission developers should have recourse to federal siting authority at 
the Commission. Such authority would be helpful even if limited to situations in which 
states have had an initial opportunity to address a proposal for transmission development 
and to transmission facilities that are primarily for moving renewable energy. 

Finally, cost allocation is often a threshold consideration in the development of 
transmission facilities for delivering renewable energy. Legislation can help clarify the 
Commission’s authority to allocate a project’s costs reasonably among all of a project’s 
beneficiaries. However, such legislation should avoid including unduly restrictive 
language on cost allocation, particularly language that would impose a requirement to 



234 


- 5 - 

calculate the precise monetary benefits expected to accrue from a new transmission 
facility. 

While these efforts on transmission issues are vital, we also should not lose sight 
of the critical role of local renewable energy. We must remove barriers to entry for local 
renewable resources. Developing and reliably delivering these local resources is 
important, but that effort must be made in concert with and not separate from developing 
the necessary transmission infrastructure. We need not choose between local and distant 
renewable resources; we need them both. 

Consumer Energy Use Management 

Consumer energy use management, also called demand response, refers to 
consumers reducing their usage at certain times that will result in improved grid 
efficiency. In June, the Commission issued an assessment of the potential for consumer 
energy use management both nationally and for each state, through 201 9. The 
assessment found that the potential for peak electricity demand reductions across the 
country is 1 88 gigawatts, up to 20 percent of national peak demand. These savings, if 
realized, can reduce significantly the number of power plants needed to meet peak 
demand and thereby reduce carbon emissions by as much as 1.2 billion tons annually. 

In its Strategic Plan for FY2009-2014, FERC commits to continue its efforts to 
identify and eliminate barriers to participation by demand resources in RTO and ISO 
markets. The Commission also will seek to identify best practices for demand response 
products and procedures and, if appropriate, initiate a proceeding to change existing 


market rules. 




235 


- 6 - 

Smart Grid 

Earlier this year, the Commission adopted a policy statement on the smart grid. 

The Commission identified several priorities for the development of standards for smart 
grid technologies, including standards needed for the integration into the power system of 
demand response resources, electricity storage facilities, and electric transportation 
systems. The Commission also adopted an “Interim Rate Policy,” specifying the criteria 
that “early adopter” utilities must meet to recover their smart grid costs. The Department 
of Energy and the National Institute of Standards and Technology (NIST) also have 
major roles in the development of the smart grid, and FERC is working closely with those 
agencies and with States in collaboratively fostering deployment of smart grid 
technology. Later this year, NIST may file a number of proposed smart grid standards 
for FERC’s review and adoption. If so, the Commission will solicit public comment and 
review the proposed standards expeditiously. 

Renewable Portfolio Standard 

While S. 1733 does not address Renewable Portfolio Standard (RPS) issues, a 
national RPS program is an important adjunct to climate change legislation. Many States 
have already adopted RPS requirements, and a properly-structured national RPS can add 
to the benefits achieved from the state requirements. A national RPS should be a “floor,” 
not a “cap,” on state programs. A national RPS also should encompass not only 
renewable resources but also distributed energy resources such as energy efficiency, 
consumer energy use management, combined heat and power facilities, and recycled 
energy (or waste heat recovery). 




236 


-7- 

FERC is well-equipped to oversee implementation of a national RPS. 
Implementation of a national RPS needs to be coordinated with other energy policies 
significantly affecting the ability of renewable resources to obtain transmission services 
and make sales into wholesale energy markets. Many of those key policies are within 
FERC’s jurisdiction. FERC not only has day-to-day knowledge of the electric industry, 
but also has extensive experience in implementing and enforcing regulatory requirements 
for electric utilities. If a national RPS is enacted, FERC is the most logical and 
appropriate agency to oversee, implement, and enforce such a national standard. 

Carbon Market Assurance 

Section 131 of S. 1733 focuses on the need for oversight of carbon markets. 
Section 131 states the sense of the Congress that there should be a single, integrated 
oversight program, and specifies a number of defining principles. Section 131 does not, 
however, establish the program or designate an agency to oversee it. 1 defer to Congress 
on which agency should oversee such a program, so long as any legislative language 
preserves the Commission’s existing jurisdiction, including its exclusive jurisdiction over 
transactions pursuant to a FERC-approved tariff of an RTO or ISO. RTOs and ISOs are 
regulated comprehensively by FERC, and their services and products are designed to 
ensure an adequate supply of electricity at reasonable prices for consumers. The RTOs 
and ISOs also are required to have market monitors, and these entities assist the efforts of 
FERC staff in detecting and penalizing any manipulation of RTO and ISO markets. 

Office of Consumer Advocacy 



237 


- 8 - 

Section 151 ofS. 1733 would establish an Office of Consumer Advocacy (OCA). 
To ensure its independence from FERC, OCA should be placed within another agency or 
created as a separate agency. Similar functions in State government are typically 
performed by State Attorneys General or by agencies outside of State Public Utility 
Commissions. 

Also, section 1 5 1 allows OCA to “investigate independently” the rates and 
services of FERC-regulated companies. But, it is unclear why OCA’s role should exceed 
the role of others advocating interests in Commission proceedings. Other advocates 
generally must request that FERC initiate an investigation, not initiate their own 
investigation. Additionally, the authority to independently investigate the same matters 
over which FERC has exclusive jurisdiction under the Federal Power Act or Natural Gas 
Act could create duplicative proceedings for regulated entities and disrupt ongoing FERC 
proceedings and investigations, including rate proceedings and market manipulation 
investigations. 

Finally, Congress may want to consider funding the Office of Public Participation 
identified in section 319 of the Federal Power Act, in lieu of enacting section 151. While 
this Office was intended to, among other things, compensate participants in FERC cases 
for their litigation costs under certain circumstances, Congress has never funded this 
Office. Funding this Office may better fulfill the goals of section 151. 



238 


-9- 

Conclusion 

FERC is using its statutory authorities aggressively to eliminate barriers to 
renewable resources and consumer energy use management, and to encourage greater 
efficiency in the electricity system. As such, we are using the authority we have to 
implement regulations and policies to address greenhouse gas emissions. But those 
efforts and the efforts of other Federal and State agencies, while helpful, are not enough 
to efficiently stem the growing accumulation of greenhouse gases in our atmosphere. S. 
1733 is the key to altering this trend. Congress should enact this legislation now. 

Thank you again for the opportunity to testily today. I would be happy to answer 
any questions you may have. 



239 


Responses to October 27. 2009 Questions to Chairman Wellinghoff from 
Senator Sheldon Whitehouse 


Question No. 1 : 

What is FERC's role in the licensing and siting of off-shore Liquefied Natural Gas 
facilities, and specifically, what is the suite of considerations FERC examines 
when approving a new LNG license application? I am concerned that FERC does 
not currently or adequately take into account a broad enough set of risks or 
burdens that an LNG facility may pose to a community, such as disruption of 
recreational activities and costs incurred by local emergency response teams. 
Please describe what FERC is legally required to consider in the licensing and 
siting process, and address any legal and resource constraints that may account for 
the oversight I have described. 

Response : 

The Energy Policy Act of 2005 provided FERC with the exclusive authority to 
approve or deny an application for the siting, construction, expansion, or operation 
of an LNG terminal located onshore or offshore in state waters. LNG terminals 
located offshore outside state waters are under the jurisdiction of the Maritime 
Administration under the Deepwater Port Act. 

As lead Federal agency for the preparation of the environmental impact statement, 
FERC analyzes the impact of the entire project, including the proposed LNG 
terminal site, the LNG vessel transit to the site, and any related natural gas 
pipelines from the site to market areas. This analysis examines all public interest 
issues relating to a proposed project, including the impacts on environmental 
resources, land use and recreational activities; the safety of the LNG terminal 
facilities and vessel transit; and other issues raised throughout the extensive public 
scoping and comment process. In addition, the Commission is required to consult 
with states regarding the emergency response capabilities near the proposed LNG 
facility. 

As a cooperating agency, the U.S. Coast Guard reviews a Waterway Suitability 
Assessment prepared by the applicant and validates it with port stakeholders to 
ensure the safe and secure transit of the LNG vessel to the terminal site. Measures 
to minimize the impact on commercial and recreational vessels that use the same 
waterway are also addressed. The results of the Coast Guard review are contained 
in a Letter of Recommendation to FERC which is subsequently incorporated into 
the draft environmental impact statement. 




240 


2 


Regarding local costs for emergency response, the FERC requires LNG terminal 
operators to develop an Emergency Response Plan for the LNG terminal in 
consultation with the U,S. Coast Guard and state and local agencies. The plan is 
then submitted to the Commission for approval by the Commission prior to the 
Commission’s granting any final authorization to begin construction. The 
Emergency Response Plan must include a Cost-Sharing Plan identifying any direct 
cost reimbursements the applicant agrees to provide to state and local agencies 
with responsibilities for security and safety of the LNG terminal and vessel transit. 
FERC reviews the plan to ensure that the economic burden on the community is 
minimized before authorizing construction. 

Question No. 2 - Streamlining Multiple Use Permits for Small Dams 

A. Rhode Island is home to approximately 600 dams, many of which are vestiges 
of Rhode Island's industrial past and are no longer in use. Of these 600 dams, 
nearly 100 are thought to be good potential candidates for micro hydro power. 

These dams are small, with mean annual water flows ranging from 12 to 791 cubic 
feet per second. (As a basis of comparison, over the first four months of 2000, 
water flows below the Hoover Dam ranged from 12,000 to 20,000 cubic feet per 
second.) Rhode Island has a proud history of harnessing its rivers to power 
manufacturing - the Blackstone River was literally the birthplace of the Industrial 
Revolution. Some of our cities and towns, such as those that lie along the 
Blackstone - Central Falls, Pawtucket, Cumberland, Lincoln, and Woonsocket - 
want to use these dams to produce local, low carbon energy. 

However, it appears that FERC's one-size-fits all licensing requirements prove very 
burdensome for micro hydro projects (turbines with a capacity of 5 megawatts or less). 
There is a recognition in the law that there should be some common-sense exemptions 
from the usual licensing requirements under the Federal Power Act, such as the 
"conduit exemption" (where a hydro project on non-Federal land will use only the 
hydroelectric potential of a manmade conduit, which is operated for the distribution of 
water for municipal consumption and not primarily for the generation of electricity). 

In addition, the Federal Power Act has delegated micro hydro licensing of dams in 
Alaska to that state. But currently, if a small dam in Rhode Island wants to install a 
5 megawatt turbine, it must undergo the same process as a dam on the scale of the 
Hoover Dam. For such a small project, this process is clearly overly complicated 
and burdensome. Does FERC current have a process in place or is working to 
establish a system to streamline the micro hydro application process for existing 
dams? 



241 


3 


Response : 

Yes, the Commission issues two types of exemptions: (1) Conduit Exemptions; 
and (2) 5-MW Exemptions. 

As you point out. Conduit Exemptions are authorized for generating capacities 15 
megawatts or less for non-municipal and 40 megawatts or less for a municipal 
project. The conduit has to have been constructed primarily for purposes other 
than power production and be located entirely on non-federal lands. 

In addition to “Conduit Exemptions”, the Commission issues “5-MW 
Exemptions” for projects that would have an installed capacity of 5 MW or less 
and be located at existing dams or that would utilize a “natural water feature” such 
as a stream without the need for a dam and propose to increase capacity. 

Section 32 of the Federal Power Act (FPA) provides for the State of Alaska to 
assume licensing and regulatory authority over qualifying small hydroelectric 
projects (<5 MW) in the state. However, Alaska has not completed drafting the 
regulatory program that is a statutory prerequisite to the state beginning to regulate 
small hydro projects. It is Commission staff’s impression that the costs and 
complexity of establishing a new state regulatory program have been matters of 
concern. 

Licensing processes at FERC are designed to accommodate non-federal 
hydropower projects regardless of size; however, the amount of information that 
must be provided and the time to process a specific application are more 
dependent upon the project's environmental impacts than its size (installed 
capacity). For projects having no or minor environmental impacts, the amount of 
information needed is generally less and processing times can be significantly 
reduced. Here are some actions we can and have been taking for small projects 
having minor environmental impacts: 

• Waive one or more pre-filing consultation stages if no objection from 
agencies/tribes 

• Notify all parties of our intent to waive additional study requests in the 
tendering notice. 

• Do paper scoping in lieu of a site visit and public meetings 

• Forego formal scoping altogether and substitute the consultation that 
occurred during pre-filing 

• Issue a combined tendering/acceptance/ready for environmental analysis 
notice 



242 


4 


• Issue a single Environmental Assessment and address EA comments in the 
order 

• Waive other parts of the regulations as appropriate 

Some examples where we have successfully expedited authorizations are: 

• Lower Turnbull Drop Project No. 12597 (5 MW), Upper Turnbull Drop 
Project No. 12598 (4.1 MW), and Mill Coulee Drops Project No. 12599 
( 1 .05 MW) - licenses issued (07/28/06) 8 months from filing. 

• Corriveau Project No. 12629 (350 kW) - exemption issued ( 10/24/06) 10 
months from filing. 

• City of Afton, Wyoming Culinary Water Project No. 13301 (225 kW) - 
license issued (10/09/09) 5 months from filing. 

The keys to lessening the regulatory burden in licensing small hydropower 
projects are for the applicant to design a project and select a site that do not pose 
significant environmental issues, and for the applicant to work with other 
stakeholders to (1) establish a consensus that the project is meritorious, (2) reach 
agreement that little new environmental study needs to be performed, and (3) 
develop agreement as to what environmental measures will be needed. Where 
these matters are resolved, the Commission can act on an application quickly. To 
the extent that there is disagreement, licensing will take longer. 

B. Rhode Islanders also want to make improvements to their dams, to facilitate the 
passage of fish and kayaks/canoes. What is FERC's role in overseeing 
or permitting these types of improvements? If these are explicit conditions 
of a micro hydro project, or if a Rhode Island project wants to incorporate 
these improvements, what other federal agencies are involved? Is there a 
way to coordinate the review of a multi-use application (to install power, 
and make environmental and recreational improvements, on an existing 
dam), to make the approval process easier for these smaller projects? 

Response : 

The Commission has jurisdiction to oversee these types of improvements only 
with respect to dams that are included in Commission-licensed hydropower 
projects. Where the improvements are proposed at Commission-licensed projects, 
the Commission can either require them during the licensing process or, if they are 
proposed during the license term, by amending the license. 

Depending on the magnitude of the change and its environmental significance, the 
licensee could be required to consult with the appropriate Federal and state 
agencies. Federal agencies could include the U.S. Fish and Wildlife Service, 



243 


5 


National Marine Fisheries Service, National Oceanic and Atmospheric 
Administration, and Corps of Engineers. In Rhode Island, the licensee would also 
need to contact the Department of Environmental Management, the Historic 
Preservation & Heritage Commission, and Water Resources Board. 

During licensing, the Commission examines all public interest aspects of a 
proposed project. Thus, when the Commission examines a proposal to develop 
hydropower, it simultaneously analyses potential environmental and recreational 
enhancements. 

C. Finally, would FERC be interested in launching a pilot project for streamlining 
micro hydro, with fish and recreational improvements? If so, could you do this 
using your existing regulatory authorities or would FERC need expanded statutory 
authority? 

Response : 

As described above in the answer to part A, the FERC is already taking steps 
within its authority to streamline the licensing and exemption processes for small 
hydro. In addition, FERC will hold a Commissioner-led technical conference on 
December 2, 2009, from 1:00 p.m. to 5:00 p.m. Eastern Time in the Commission 
Meeting Room at the Federal Energy Regulatory Commission, 888 First Street, 
NE, Washington, DC 20426. The purpose of this conference is to explore issues 
related to licensing small non-federal hydropower projects in the United States. 
Specifically, the participants will discuss the Commission’s program for granting 
licenses and exemptions from licensing, including 5-megawatt and conduit 
exemptions. The conference will also provide an opportunity for industry, state 
and federal agencies, tribes, and other stakeholders to express their views and 
suggestions for processing applications for small hydropower projects. After the 
Commission reviews the matters discussed at the conference and public comments 
received thereafter, the Commission will assess whether further streamlining is 
appropriate and can be accomplished within its current regulatory authority. 



244 


6 


Responses to October 27. 2009 Questions to Chairman WeHinghoff from 
Senator Tom Udall 

Question No. 1: 

It is my understanding that most FERC-jurisdictional interstate natural gas 
pipelines would be regulated as regulated industrial entities in this legislation, and 
therefore would be required to purchase emission allowances and incur other 
compliance costs. 

Due to FERC rate regulation, interstate pipelines would not be able to unilaterally 
adjust the price of their product or service to reflect the cost of compliance. 

Instead, these pipelines must seek approval from the FERC to recover such costs 
in the rates charged for pipeline transportation service. 

Would you agree that traditional rate case proceedings may be ill-suited to 
addressing these costs, because such costs are likely to be unpredictable and are 
likely to vary from year to year, and given the number of such cases that could be 
required? 

Instead, would you and the FERC recommend a rate tracker or other mechanism 
for these greenhouse gas compliance costs, similar to current rate trackers for fuel 
costs? 

Response: 

Pursuant to the Natural Gas Act (NGA), the Commission must give interstate 
natural gas pipelines an opportunity to recover their prudently incurred costs of 
providing services subject to the Commission’s jurisdiction, including an 
opportunity to earn a reasonable return on their investments. The Commission 
ordinarily requires pipelines to file a general rate case under NGA section 4 in 
order to recover any cost increases. Such a rate case allows the Commission to 
review all the pipeline’s costs and revenues to develop just and reasonable rates. 

It may be determined that increases in some types of costs are offset by decreases 
in other types of costs. The Commission has also allowed pipelines to file more 
limited proposals under section 4 to establish separate rate tracking mechanisms 
to recover a particular type of cost, if those costs are more volatile than the 
pipeline’s ordinary costs and thus are difficult to predict. For example, a number 
of interstate pipeline companies currently recover the costs of fuel through annual 
tracking mechanisms. Therefore, under existing law, pipelines may propose to 
recover any costs they may incur to comply with the proposed legislation in a 
tracking mechanism and the Commission can then consider whether such a 
recovery mechanism is just and reasonable. 




245 


7 


There are some potential issues related to rate trackers that may not make them the 
best cost recovery option in this instance. First, if the rate tracking mechanism is 
crafted so that any costs passed through are presumed to be just and reasonable 
and prudent, there would be no opportunity to review the costs. Rather, such a 
mechanism essentially would guarantee full recovery of any costs incurred by the 
pipeline. Second, absent a revenue true-up mechanism or other revenue pass 
through provision, the tracker could become a profit center for the pipeline 
because it would be designed to recover costs, but not offset those costs by any 
revenues that may be received. Third, a rate tracker mechanism could remove any 
incentives for pipelines to seek efficiencies in greenhouse emissions because they 
will have a guaranteed full recovery of any costs incurred to purchase such 
emission allowances. 

The question of whether a rate tracker is an appropriate mechanism is one that the 
Commission has addressed in the past. I believe the NGA currently gives FERC 
sufficient regulatory flexibility to apply its experience and decide whether a 
tracker is a fitting mechanism in this situation and, if so, the proper design of the 
tracker to address the issues discussed above. However, if Congress instead 
decides to propose a legislative rate tracker solution, such legislation should 
include a reasonable opportunity to review the costs flowed through the tracker, as 
well as potential revenues, to ensure that the pipelines remain revenue neutral. 

This may best be achieved by requiring a periodic review of the pipeline’s overall 
rates. 


Question No, 2: 

It is also my understanding that many pipelines and their customers have 
negotiated rates or settlements wherein the pipeline has contractually agreed not to 
seek a rate adjustment for a certain number of years into the future, likely without 
contemplating the possibility of any new greenhouse gas compliance adjustment. 

What options are available, either regulatory or statutory, to address such 
contractual situations to prevent economic disruption in the interstate natural gas 
pipeline market? 

Response: 

Unless Congress enacts provisions to the contrary, parties to negotiated rate or 
settlement agreements currently must file with the FERC for approval to amend or 
revise such agreements. The Commission’s consideration of any proposed change 



246 


8 


to these contracts depends on whether the parties have reserved for themselves the 
right to unilaterally change their agreement. If the parties have reserved that right 
in their agreement, then the Commission will approve or disapprove the requested 
change based upon a determination of whether the change is just and reasonable. 

If the parties have no such right in the agreement, then the Commission must 
determine whether the requested change or abrogation of the contract is in the 
public interest. 



247 


Senator Boxer. Thank you so much. 

We will each have 5 minutes to question. 

Secretary Salazar, how will this bill help to mitigate the impacts 
of unchecked global warming pollution on the Nation’s most pre- 
cious natural resources? And I know how strongly you feel about 
being the guardian of those for this time. So how will this bill help 
to mitigate if, if we are successful, and what would happen if we 
fail? 

Mr. Salazar. It would have a dramatic and positive impact in 
terms of protecting the national icons of America. And you can see 
it in the way that I think many Americans would see it if they 
have the opportunity to sit in my chair, where you can go to a place 
like the Apostle Islands in Lake Superior in Wisconsin, and you 
can see the warming of the surface of Lake Superior by 5 degrees 
or flying across to the wildlife refuges of Minnesota and recognizing 
what is happening with wildlife and wildlife migration and their 
habitat because of the warming of those places. 

Or perhaps even most graphically, in places like Glacier National 
Park, which we have now projected will have no more glaciers by 
the year 2020. And finally, in the Grand Canyon, where there was 
a compact with respect to water put together back in the 1920s, 
which we now are projecting that there will be perhaps as much 
as 20 percent less water available in the Colorado River basin, 
which will affect all of those States, including Southern California. 

So the urgency of this bill is there. And I believe that one of our 
responsibilities is to be able to tell that story of urgency to Amer- 
ica. 

Senator Boxer. Thank you, and you do it so very well. 

Administrator Jackson, a lot of people think that the trading pro- 
gram that we have in this bill is somehow brand new. Some of my 
colleagues call it a tax. All of them do, on the other side. They 
never called it a tax when it was in the Clean Air Act’s acid rain 
program. So, they never called it a tax then. 

So now, what I want to ask you is how successful has the Clean 
Air Act’s Acid Rain Sulfur Dioxide trading program worked? And 
do you have optimism that a trading program around carbon will 
have a similar impact? 

Ms. Jackson. Thank you, Madam Chair. 

The acid rain control program — the predictions at the time were 
that it would cost a lot of money and be ineffective. And EPA was 
very proud of the fact that it worked in a bi-partisan fashion back 
then with the first Bush administration to pass amendments that 
would actually prove that to be wrong and have indeed proven it 
to be wrong. 

The acid rain costs, which were regarded at the time to be opti- 
mistic, even on behalf of the Bush administration, turned out to be 
lower than thought. In fact, the Administration estimated that the 
annualized compliance costs would be $4 billion a year. In fact, the 
costs are now estimated to be just $2 billion annually. So it is a 
lot cheaper, and emissions have been reduced. 

It has also proven to harness the marketplace and the private 
sector, once they got the clear signal, once the market incentive 
was there, once they knew that S0 2 pollution had a cost, they were 
able to make business decisions. We saw the most cost effective re- 



248 


ductions come forward. And that is what I believe can happen here 
as well. 

Senator Boxer. Thank you. 

Secretary Chu, I see that Senator Specter is back. His focus was 
jobs. I have here a study by the Center for American Progress. It 
says, “Investments in a clean energy economy will generate major 
employment benefits for Pennsylvania and the rest of the U.S. 
economy.” They go on to say, “Our research finds that Pennsyl- 
vania could see a net increase of about $6.1 billion in investment 
revenue and 72,000 jobs.” 

It points out that adding 72,000 jobs to the Pennsylvania labor 
market in 2008 would have brought the unemployment rate down 
to 4.3 percent from its actual level of 5.4. 

The reason I am using Pennsylvania, I just happen to have this 
particular paper in front of me. We talked before, I think it was 
at a Democratic Caucus lunch, about the importance of letting the 
private sector put a price on carbon through this system. So my 
question is, the certainty of that kind of policy, how important is 
it to attracting the kind of venture capital that we need to get this 
economy rolling forward? 

Mr. Chu. Well, as I said in my testimony, that long-term signal 
is incredibly important, because when companies make invest- 
ments, for example, when power companies make investments, 
they are thinking this investment will last for 60 years. It could 
take anywhere from 5 to 10 years from the decision to go forward 
to the time it is really built. So you are really talking a 70-year 
time scale. In that time scale investment, you really need these 
long-term signals to say what is going to be happening in the next 
50, 60, 70 years. 

To the question about jobs, I should also say that not only are 
we talking about jobs today in the near-term future, we actually 
need to talk about jobs that will be sustaining 10 years, 20 years, 
50 years from today. So these are going to be jobs that will con- 
tinue to be jobs in the future. The rebuilding of the American infra- 
structure, the retrofitting of our buildings, the building of a clean 
new industry, the restarting of a nuclear industry in the United 
States and the building of those power plants, these are all jobs 
where, if we don’t choose to lead in the development of this new 
technology, China and other countries will. 

Senator Boxer. Thank you very much. 

Senator Inhofe. 

Senator Inhofe. Thank you, Madam Chairman. 

I have been observing over the last 2 and a half hours or what- 
ever it has been how quickly we forget here in these hallowed 
halls, the insulation of the U.S. Senate. It was only 60 days ago 
we came back from our August recess. And we have forgotten all 
about the outrage that is out there. Those people, many of them 
have been denigrated for not really expressing a sincere concern, 
but let me assure you, I say to my friends in the Senate, it is there. 

And there are two issues, health care and then this thing we 
keep saying is not a tax, but what I consider to be the largest tax 
increase in history. And the people understood that. 

Now, I also, I don’t want any of the media to think just because 
I had to sit here and listen to our good friend, Senator Kerry, for 



249 


28 minutes, that I don’t have responses to everything he said. I can 
assure you that over a period of time, I will be responding to such 
things as naming Duke Energy and other companies. We have al- 
ready talked about this. There are clear winners and losers in this 
program. We had a hearing, and I outlined how much money each 
of those individuals from corporations would make if this thing be- 
comes a reality. And they are out there. It will be huge amounts 
of money. So follow the money; it is there. 

The carbon tax, he mentioned James Hanson. James Hanson, we 
all know, is the recipient of $250,000 from the Heinz Foundation. 
However, for the first time, I agreed with him, his statement, just 
the other day was, this James Hanson, cap-and-trade is a temple 
of doom, it would lock in disasters for our children and our grand- 
children. He goes on and on talking about that. 

And the reason he is doing that, I say to my friends in the panel, 
is that if you want to go about this honestly, go ahead, do a carbon 
tax, so everybody knows. But there is a good reason why we are 
not doing that. And that is, it can be so easily masqueraded by this 
very complicated tax in trade thing, or cap-and-trade thing that we 
are talking about. 

Then I have to correct my fellow Senator, he is not here right 
now, but I understand he is returning, Vitter, when he said that 
China is cranking out two new coal-fired generating plants each 
month. It is really, according to the Chinese government, they are 
doing it each week, not each month. It goes on and on. 

And on the science. The science is more definitive than ever. You 
keep saying that, because you want to believe it so much. And yet 
the same people, those scientists, I have a list, I say to my good 
friend, Secretary Salazar, of scientists who are on the other side of 
this issue, back during Kyoto and even back 6 or 7 years ago, and 
during the consideration of the 2005 bill, who are solidly on the 
other side right now. It is coming. It has already shifted. It is not 
shifting, it already has shifted. 

And I would suggest to you that when we get on the floor and 
talk about this, I will say to my good friend, the Chairman of the 
committee, that I am going to do the same thing we did during the 
debate, if it comes to debate on the floor, during the Warner- 
Lieberman bill. And that is say, science is not settled, everyone 
knows it is not settled. But for the sake of this debate, let’s assume 
it is. It is not, but let’s assume it is so we can talk about the eco- 
nomic issues. And that is what we would be doing. 

So quickly here, Administrator Jackson, first of all, I would just 
make one comment. I think you would have to agree with this. If 
not, let us know in writing for the record if you disagree, that we 
use this example of acid rain. In acid rain, there was a big dif- 
ference. That is, technology was proven, and that is a huge dif- 
ference from where we are today. 

But I do want to ask you one question. Senator Barrasso and I 
sent you letters on the endangerment finding throughout August 
and September, and we didn’t get any response until last night 
about 5 o’clock. I don’t want to use up the remaining time, but if 
you just for the record would let me know, if you would try to stay 
with those things that you stated during your confirmation hear- 



250 


ing, that you would be responsive to our requests, I would appre- 
ciate that very much. 

The second thing I would ask, a response for the record from 
each of the members, that is the worker adjusted assistance provi- 
sion of this Act, if that doesn’t presume that we are going to lose 
jobs in the Act. 

But last, since Secretary Salazar, I know that you have a sched- 
ule, you might get up and leave, I want to give you the opportunity 
to respond to something that I feel is very significant. That is a re- 
port that just came out last week from the Congressional Research 
Service that says America’s combined recoverable natural gas, oil 
and coal reserves is the largest in the world. We didn’t used to be. 
It is now. And I agree with the three goals that you outlined at the 
beginning of your 5-minute statement. I would like to know if, 
should we develop these resources, and what can your department 
do to help do that. 

Senator Boxer. Senator, you have gone over your time, but you 
want these in writing. So what I was going to suggest 

Senator Inhofe. That would be fine, for the record. 

Senator Boxer [continuing]. As a way we have done it before. If 
you could get your questions in writing from your staff to ours by 
tonight 

Senator Inhofe. No, Madam Chairman, I have already stated 
them. I don’t have to change them. 

Senator Boxer. So you don’t want to put them in. OK, then what 
we will do, with your permission, because I just want to make sure 
it is answered to your satisfaction, we will take your question from 
the record and we will put them in writing to Lisa Jackson. And 
we would ask all the panelists, please, to get your answer in by 
close of business tomorrow. Is that all right with everybody? 

Senator Inhofe. Fair enough. 

Mr. Salazar. Madam Chairman, if I may, I need to excuse my- 
self for another meeting. 

Senator Inhofe. You have to leave, yes. 

Mr. Salazar. But I wanted to say two quick things. One is that 
I had a formal statement that I will submit for the record, and I 
am sure my colleagues as well, and hope that that can be accepted 
for the record. 

Senator Boxer. Yes. 

Mr. Salazar. And second, on behalf of my colleague, Tom 
Vilsack, who is not here, but he has been part of these meetings 
getting ready for this hearing, he would be here to tell the people 
of American that rural America is going to benefit significantly 
from this legislation. 

Thank you very much. 

Senator Boxer. Yes, and I have placed his statement in the 
record. 

Thank you so much. We are so sorry that we ran a long time, 
but you know what, I think it is key for colleagues to have their 
chance. 

With that, we will go to Senator Klobuchar. 

Senator Klobuchar. Thank you very much, Madam Chair, and 
thank you to all of you for your leadership. Thank you, Senator 
Salazar. 



251 


I wanted to clarify, in my opening statement I talked about how 
the Federal Government hadn’t gotten to the trailhead. And I prob- 
ably should have more likely said Federal legislation hasn’t gotten 
to the trailhead, because I want to commend all of the Secretaries 
for the work that you have done with the legislation that you have. 
But I truly believe that we can bring more jobs and put America 
back in the driver’s seat here by passing some forward thinking en- 
ergy legislation. 

The question I had, and I think, Secretary Chu, I have always 
enjoyed talking to you about these new technologies, and a more 
optimistic approach to this. To turn a phrase on Senator Inhofe, to 
sort of crawl out of this temple of gloom that gets created when we 
talk about this legislation. I really see some optimistic possibilities 
here. 

When you look back, when President Kennedy talked about put- 
ting a man on the Moon, all the technologies that came out of that 
that weren’t about the Moon, from GPS monitors to CT scans to 
satellite weather technology to the little chocolate space sticks that 
my family took on camping trips in the 1970s. Could you talk about 
the signal that this can provide to the private sector for invest- 
ments, and explain that in a little detail? Because we have with 
this game of red light, green light that we have done in Congress 
with some of these tax incentives, we just haven’t gotten to the 
place that other countries have gotten with investment. 

Mr. Chu. Sure. I think going back to what we need are long-term 
signals, both on anything we do, whether it is a tax credit, subsidy 
of some kind, programs for it. On-again, off-again is disastrous if 
you do it every other year. It just doesn’t work. Denmark and Eu- 
rope and Germany developed their wind turbine industry. They 
took it away from us, because they gave a very long-term view to 
this. 

Going back, those long-term signals, particularly a cap on carbon, 
and then you know what is going to happen in 2020, 2030, 2040, 
2050, can actually stimulate a lot of stuff. Now, yesterday we just 
announced the first 37 selections for our ARPA-E program. We had 
nearly 3,700 applicants. So we had to winnow it down to the top 
1 percent. 

Some of those top 1 percent are truly spectacular. New batteries 
that could potentially scale up where you can store megawatt hours 
of energy, at a cost that perhaps is a factor of 10 or 20 cheaper 
than existing technology. And this is an old metal liquid battery 
that the positive and the negative side of the batteries are metal, 
and the electrolyte in between is a metal salt. And when you 
charge the battery up, it goes to pure metal and a little electrolyte 
is left over and you discharge it. It goes, all the metals go back into 
the salt. 

So you can make a swimming pool sized battery, or you can 
make it this big. And so to see ideas like that, brilliant ideas that 
I am beginning to see on carbon capture, that could dramatically 
lower the cost, and when you see these things popping up, and 
most of what I see popping up has only appeared in the last 5 
years. 



252 


Senator Klobuchar. And your view is that if we don’t put these 
kinds of clear market signals in place in legislation we may not get 
this investment. 

Could we just switch to nuclear? Because I am in the group that 
believes this has to be part of our solution as well, and I know you 
have been positive about this. Just the timeframe for nuclear, as 
we know that this should be, for those of us that believe it should 
be part of the solution. If we only relied on nuclear, what would 
be the timeframe of that? I guess I am getting to the point of, we 
have to have a combination of things, some things that move 
quicker. 

Mr. Chu. We are pressing very, very hard on getting the first of 
the nuclear loan guarantees. We have authorized $18.5 billion for 
nuclear loans. That is able to start three, maybe four, depending 
on foreign partners. Four nuclear reactors at most. So we are work- 
ing very, very hard. Hopefully very soon we can announce the first 
of these, and hopefully by the end of the year the rest of them. 

This is a beginning of the re-starting of the nuclear industry. 
Getting three or four going, I would say, doesn’t really get it going. 
So I view that as the beginning. But we are also looking. 

Senator Klobuchar. So what is the timeframe on that, for when 
we will get that energy? 

Mr. Chu. Those loans? 

Senator Klobuchar. Yes. 

Mr. Chu. As I said, we are trying to move forward by the end 
of this year. 

Senator Klobuchar. No, but getting a nuclear power plant up 
and running. 

Mr. Chu. Well, that depends. It depends on a lot of things. It de- 
pends on what the NRC does. The NRC is trying to streamline its 
review process of the power plants. And so one wants to decrease 
the time of approval. They are trying to make generic approvals of 
each type of power plant, instead of just doing one off each time. 
And then a much quicker approval at a particular site. 

Senator Klobuchar. But how about when we really get the en- 
ergy from it? Nothing to do with delays and the Government proc- 
ess. 

Mr. Chu. Ideally, it could be between 5 and 10 years from the 
time you say “go ahead” to the time you turn on the electricity. 

Senator Klobuchar. Thank you very much. 

Senator Boxer. Senator Voinovich. 

Senator Voinovich. Administrator Jackson, you and I and our 
staffs have had an ongoing disagreement about the thoroughness 
of your doing your analysis. In your report on the impacts of 1733, 
you state, “Because of these many similarities and the relatively 
small differences between the two bills, it is likely that a full anal- 
ysis of 1733 would show economic impacts very similar to H.R. 
2454.” The fact is that you have not done a complete analysis, is 
that correct? 

Ms. Jackson. We have not run the full economic modeling, sir. 

Senator Voinovich. How long would it take you to do that? 

Ms. Jackson. I believe we estimated 4 to 5 weeks. I think that 
was the estimate to run the full suite of modeling. 



253 


Senator Voinovich. So that we would actually have the numbers 
of a full analysis. And that is exactly what I have asked the Chair- 
woman that we have before we mark up this bill from this com- 
mittee. 

The other thing that we have talked about, I remember when we 
talked and you came in, you said that you would prefer that we 
deal with climate change through legislation rather than the Clean 
Air Act. I note in this legislation that it does not preempt the Clean 
Air Act. In other words, we would continue to have, we would have 
this legislation and we would also have the Clean Air Act to con- 
tend with. 

Have you changed your position on that? 

Ms. Jackson. I have not changed my position. I have — my belief 
is that there is only one way to get economy-wide market incen- 
tives for reducing greenhouse gas emissions, and that is through 
new legislation. But I also firmly believe that the Clean Air Act has 
value and that there are common sense measures that can be 
taken under the Clean Air Act, either in the absence of or with new 
legislation. 

Senator Voinovich. Well, my feeling is this. If we are going to 
have a comprehensive climate change piece of legislation pass that 
the people out there, that Dr. Chu referred to, that are going to be 
making decisions, ought to know that this is it. In other words, 
these are the rules that we are going to abide by and we can count 
on it, and they are not going to change the rules on us 5 or 10 
years from now. 

Dr. Chu, and by the way, the number in the Boxer-Kerry bill is 
20 percent, Waxman-Markey is 17 percent. I can’t believe that by 
increasing that percentage, that you are not going to have a larger 
impact on the economy, on the number of jobs and also on the rates 
that folks in Ohio are going to have to pay for electricity, for nat- 
ural gas and pay for gasoline. 

But Dr. Chu 

Senator Boxer. Do you want an answer to that? 

Senator Voinovich. No, I just 

Senator Boxer. OK. Well, I would appreciate — can you freeze the 
time? I would appreciate your answering that in writing, because 
I know there is a very good answer to that. So if we could have 
that done as well. OK, go ahead. 

Senator Voinovich. Dr. Chu, one of my problems with this legis- 
lation is that the caps are unrealistic in terms of the availability 
of technology. The real issue that we have here is by 2020, are we 
going to have the technology, for example, to, there is an assump- 
tion about how many clean coal plants we are going to have. Are 
we going to have enough money to do that technology so that we 
can capture and sequester carbon? For example, my concern is this. 
The Chinese are putting on two coal-fired per week. If they con- 
tinue to do these emissions from coal, it is urgent that we get at 
this carbon capture and sequester issue, because it is not only 
going to affect the United States, but also China. 

And I think that the President talked about 15 percent of this 
money, the bill money going to technology. And I think the Kerry- 
Boxer bill is a little better than Waxman, but not a whole lot better 



254 


in terms of available money to do technology. Could you comment 
on that? 

Mr. Chu. Yes, I think that in the 2020 time scale, I see a couple 
things beginning to turn around. It is our goal, for example, to test, 
pilot a number of carbon sequestration things. I think in a reason- 
ably optimistic analysis, these things could be done in 8, perhaps 
10 years. So it is 2009 now, and then you begin to deploy on a more 
or less routine basis some things, so it begins to happen. 

Nuclear power, I said ideally, 5 to 10 years. Let’s put it a little 
bit further and say 10 years from today power plants start turning 
on. 

So a lot of the things that will give us the much reduced carbon 
or completely clean things like that will take a scale of 10 years. 
We can grow the wind renewable aggressively, as we are doing 
now. Energy conservation, if we really think hard about how to im- 
plement that is, I believe, the lowest cost option to getting a lot of 
the carbon out of what we are doing. It is things like that. But it 
has to be done in a programmatic, very aggressive manner. 

Senator Voinovich. Thank you. 

Senator Boxer. Thank you. 

Senator, there is, the question you raised is answered in the EPA 
modeling, because we have some offsets to that increase that deal 
with allowing landfill, coal mine and natural gas system methane 
sources as offsets. That is why it doesn’t impact the cost. 

Senator Specter. 

Senator Specter. Thank you, Madam Chairman. 

Administrator Jackson, the issue that Senator Voinovich has 
raised is a big one. One of the factors which has brought support 
to this legislation has been the provision in the House bill which 
does make the determination as to emissions on carbon dioxide. 
And the approach is to have to buy allowances, so you can’t emit 
carbon dioxide unless you pay for it. Establishing that standard, 
that the Congress would, would have a tradeoff of not having EPA 
come in with additional regulation. And that is a big selling point 
for people who don’t like the legislation. 

Now, there are those who are very much in favor of keeping EPA 
with its regulatory authority. But we face a very practical situa- 
tion, like your thinking, if it comes down to getting the votes so 
that we really deal with carbon dioxide, and deal with it in a pretty 
rugged fashion, 2020, 2017 or whatever we do, and these allow- 
ances are very expensive, and we make that kind of gigantic 
progress, would you concede a little on that issue? 

Ms. Jackson. Senator, I certainly understand the point. I would 
only make three points for consideration, because I believe the EPA 
authority question is one that will certainly be discussed in this 
committee and in broader venues. 

The first is that there are — the cap in this bill is actually not en- 
tirely economy-wide. There are important carbon emission sources 
that could be addressed through Clean Air Act regulation. The 
transportation sector and the rules that Secretary LaHood and I 
cited are a good example of that. So obviously, not all Clean Air 
Act regulation is created equally. 

Second, and quite important, is that the move to market incen- 
tives, we have heard from communities who say it is very impor- 



255 


tant that we also make sure that we don’t inadvertently con- 
centrate pollution in any one area. So part of the Clean Air Act 
New Source Review idea is that it allows for when significant in- 
vestments are being made, or new sources are coming on, for us to 
reset the playing field, if you will, to say, no, listen, no matter what 
pollution allowances are calling for at that point, we need to think 
about the fact of whether we should be investing any more in a 
community. It does allow for equity concerns, if you will, across 
communities. And that is important. 

And last, I will simply say that I think that your point about the 
fact that this is designed to address some places that there are 
overlapping authorities is a good one. It is certainly one I respect 
tremendously. I have already come out to say that I believe very 
strongly that the most cost effective way to put a price on carbon 
and move our market and transition our economy and build a clean 
energy economy is through cap-and-trade and though legislation of 
this type with this kind of model. 

So I think the market incentive tradeoff with regulation is one 
that we are happy to continue to discuss with this committee. 

Senator Specter. Well, I am glad to hear you like cap-and-trade 
and like the legislation. But in order to get the legislation, there 
may have to be a little give. But if there are new plants, they are 
subject to totally different standards. And you are dealing with car- 
bon dioxide; you are not exactly dealing with a local problem. You 
are dealing with a general problem. 

But if you have other ideas that you think there needs to be 
more flexibility, I would suggest you let us know what they are, 
and let us deal with them in legislation. Because if we come up 
with legislation which is finite and people know what to expect, 
you will get a lot more support out of western Pennsylvania and 
maybe from Arlen Specter or Bob Casey, although I don’t want to 
speak for my colleague. 

But if there are other things that you want, let us know what 
they are. And we will try to accommodate them. But there is a 
great deal to be gained by certainty, so people can make plans. 
That is what we want to legislate on. If the Administrator of EPA 
continues to have flexibility, people are going to say, we don’t know 
where we are, we don’t want to buy a pig in a poke. But as tough 
as it may be, through legislation, they may say OK. 

I am almost out of time, so I just want to make two comments, 
one to Secretary LaHood, about CLEAN-TEA, the legislation which 
Senator Carper has championed and I have co-sponsored, the Car- 
per-Specter bill, which the Chairwoman has graciously included in 
this legislation. That would provide for a reduction of vehicular oil 
burning or cars, for mass transit, for bicycles, for rail. And I would 
like to see us pursue that at the administrative level. 

And a question for Chairman Wellinghoff to be answered for the 
record, I have introduced in the last two Congresses legislation, 
now in Senate Bill 32, which calls for hearings by FERC. And in 
my travels through Pennsylvania, 67 counties, I have a lot of com- 
plaints about transmission line and power lines and pipelines. My 
legislation would require a hearing. And a hearing is a very useful 
thing. Some hearings are not very useful, like my town meetings 
in August. 



256 


[Laughter.] 

Senator Specter. But a hearing has great utility in allowing peo- 
ple to express themselves and to have some consideration, even if 
you don’t find it. So I would appreciate it if you would take a look 
at Senate Bill 32, which Senator Casey and I are pursuing. I think 
it would take a lot of the steam off, if you come out and listen to 
people. I find it very helpful. And even if you can’t agree with peo- 
ple, they like to have an opportunity to hear it. 

Thank you, Madam Chair. 

Senator Boxer. Thank you, Senator Specter, and you are abso- 
lutely right about certainty. That is what this legislation is all 
about. Without the certainty, you are not going to have the invest- 
ments. Without the certainty, nobody is going to know what hap- 
pens. 

So we will work together to make sure that you have that cer- 
tainty that you feel is necessary. As long as we protect clean air, 
that is what we are about. 

Senator Specter. My constituents and I very much appreciate 
that assurance. Thank you. 

Senator Boxer. Absolutely. Thank you, Senator. 

Senator Sanders. 

Senator Sanders. Thank you, Madam Chair. Just a couple of 
questions for Secretary Chu and a question for Secretary LaHood. 

The State of Vermont has, I believe, led the country in terms of 
energy efficiency. We are actually consuming less electricity now 
than we were a couple of years ago. And it is not like, the recession 
has hit us, but not any worse than it has hit other States. 

Mr. Secretary, I understand you are announcing today a very sig- 
nificant funding for the “smart grid,” and Vermont is going to do 
well by that. My understanding is that in previous studies, a home 
can reduce its electricity consumption by 15 or 20 percent with one 
of these smart grids. Can you take a moment to explain to the peo- 
ple what you hope to accomplish with this smart grid program? 

Mr. Chu. Well, the first thing that will happen with a smart 
grid, especially with homeowners, is what you want to do is you 
want first to let the homeowners know sort of in real time how 
they are using electricity. And at times, as we transition to real 
costs, real time pricing of electricity, for example, it is not true in 
Vermont, but let’s say in a place where there is a lot of air condi- 
tioning, and you are using energy, it costs a lot of money to provide 
power during those peak times. 

We have about 5 percent, if you look at the power that we have, 
a lot of peakers, they are essentially idle except for maybe the last 
5 percent of the time. 

Senator Sanders. The bottom line here, it will enable consumers 
of electricity to use that electricity much more cost effectively. Do 
you have any estimates as to what kind of savings we can see in 
that in terms of percentage of reduction of electricity in the average 
home? 

Mr. Chu. Not off the top of my head. But I know globally, across 
the United States, if we just peak load shift that last 5 percent, 
which we can do without really any disruption or change in life- 
style, globally and in the United States, we are talking about over 
$100 billion per year. 



257 


Senator Sanders. The other thing is, Mr. Secretary, I have a 
chart here, which deals with the cost to build new power plants in 
2009. What it suggests is that the least expensive way forward is 
through wind, followed by biomass, followed by solar thin film, fol- 
lowed by geothermal, followed by solar thermal. Then we have coal 
gasification. And that number does not include coal sequestration, 
which makes that a lot more expensive. Then we have nuclear. 

In other words, what this chart tells you, if you are serious about 
building more capacity in the United States, the most cost effective 
way to go forward is through the new sustainable energies. What 
does that chart tell you in terms of how this country has to invest 
into the future? 

Mr. Chu. Unfortunately, my eyes are getting old. 

[Laughter.] 

Mr. Chu. I can read the axis, I can’t say about the numbers. But 
certainly one of the things is that we are trying to, first, the first 
thing you do is you work very hard on energy conservation, so you 
don’t build anything new. And you just save. If done correctly, that 
is a money maker. The investments in energy efficiency, the con- 
sumer actually keeps that money. 

So that is the best thing you can do. 

Senator Sanders. My only point here is that the most expensive 
new electricity generation is nuclear and coal. Yet, I sit around this 
committee and all I hear is nuclear and coal. It seems to me that 
if we are smart, and we want to save taxpayers money, and we 
want to protect the environment, and we want to create jobs, 
maybe we should start looking at wind, biomass, solar and geo- 
thermal. 

Let me ask Secretary LaHood a question. This is just a very gen- 
eral question. People come back from visits to Europe, they come 
back from visits to Japan, they come back from visits to China, and 
they say, wow, they have these fast, these high speed rails, zillions 
of people going to work on mass transportation. And we come back 
to the United States, we have trains that are going 25 miles an 
hour over rickety rail. Why is it that the United States today is so 
far behind other countries in terms not only of rail, but of public 
transportation in general? What are we going to do about it? 

Mr. LaHood. Lack of investment. We have never made the in- 
vestment. If President Eisenhower had signed the Passenger Rail 
Bill instead of the Interstate Bill, we would have state-of-the-art 
like they do in Spain, like they do in Europe, like they do in Asia. 
But we have a state-of-the-art interstate system. Second to none in 
the world. 

But because of President Obama’s vision, because of Vice Presi- 
dent Biden’s vision, high speed passenger rail, better passenger rail 
is coming to America. The down payment is $8 billion. That is not 
near enough. But there are companies from Europe and Asia in the 
United States right now ready to make investments in passenger 
rail. And we have some great proposals that have come into the 
Department. We are evaluating them for the use of our $8 billion. 
We need help from Congress to 

Senator Sanders. But you will agree that $8 billion is a fairly 
paltry sum? 



258 


Mr. LaHood. It is a down payment. It is a very small amount. 
But it is $8 billion times more than we have ever had at the De- 
partment. 

Senator Sanders. All right. Let me ask you this, also. It is not 
just rail. I come from a rural State where people, in a vast majority 
of instances, can’t get to work on public transportation. They have 
to use their car, period. What are we going to do about that? 

Mr. LaHood. We are going to continue to work with you, Sen- 
ator, and others that represent rural States on making sure there 
are good transit services for people that want to live in rural Amer- 
ica. We owe it to them to do that. There are people that want to 
stay in small towns, but yet get to a larger area to go to a doctor 
or go to the grocery store or go to the drugstore. And we are going 
to work with you and other Senators from rural America to make 
sure these transit services are available. 

Senator Sanders. Madam Chair, I would just simply say that 
when we look at transportation, we have to have a special focus on 
rural transportation, which needs just an enormous amount of im- 
provement. Thank you all very much, to all of the panelists. 

Senator Boxer. Thank you, Senator. 

Senator Udall. 

Senator Udall. Thank you, Madam Chair. 

I don’t want to neglect Chairman Wellinghoff, so I want to ask 
you a question. Your testimony here today discussed the need for 
a renewable electricity standard, and RES and the climate bill are 
intended to be complementary. We expect that with what the lead- 
ership has talked about them to be joined on the Senate floor. Sev- 
eral Senators have joined me in introducing legislation that would 
set a 25 percent renewable electricity standard by 2025. Based on 
the rapidly declining costs and the huge potential resource, espe- 
cially in the West, do you believe that this standard is achievable, 
and what would its impact be on our climate goals? 

Mr. Wellinghoff. Thank you, Senator Udall. I assure you, I 
don’t feel neglected. 

I do think it is achievable . In fact, I was one of the primary au- 
thors of the renewable portfolio standard in the State of Nevada 
and am very familiar with California’s and Colorado’s and your 
State’s efforts in that area. We now have 31 States, in fact, in this 
country that have renewable, portfolio standards for renewable en- 
ergy standards. But I think it is essential that we have a national 
standard. It is time that we have a national standard, and I think 
the goals that you set are very achievable. 

Senator Udall. Secretary Chu, recently the Potential Gas Com- 
mittee found that the U.S. natural gas supply has increased 40 per- 
cent in just 2 years, and that some industry estimates are pointing 
to a 100-year supply of U.S. natural gas. I believe that natural gas 
is an overlooked resource and has great potential to replace oil in 
heavy truck transportation, create jobs in States like New Mexico. 
Does the Department of Energy believe that we are entering a time 
of abundance with natural gas that could make our climate goals 
much easier to reach, since it is a relatively low carbon fuel? 

Mr. Chu. The short answer is yes. I have heard estimates consid- 
erably more optimistic than the one you just cited. And if you in- 
clude Canada, it is considerably more. So we are beginning to look 



259 


at things, for example, in central locations where there is not an 
infrastructure problem. We are funding, piloting vehicles that are 
propelled by natural gas, delivery trucks, buses, go to the central 
station and then will always return to that station, to see if this 
is a viable thing. 

Certainly in this century, because of the new technologies that 
can recover natural gas from shale, it is a lower carbon option. 

Senator Udall. And from everything your scientists tell you, 
these are pretty reliable estimates in terms of the increase and the 
potential out there? 

Mr. Chu. They appear to be. 

Senator Udall. And talking about renewable energy here, from 
your perspective on renewable energy, are the costs per kilowatt 
coming down for solar and wind, and should we expect it to con- 
tinue under this legislation? And are the innovation benefits in this 
area reflected in traditional economic analyses of climate legisla- 
tion? Or is this an extra benefit that we should expect to see? 

Mr. Chu. Well, the costs of wind and solar are coming down. 
They are steadily coming down. It is looking very good. Right now, 
the cost of the solar module, the retail cost, has just gone down 
below a dollar per watt. A decade ago, it was $5, $8 a watt. So it 
is remarkable. The things that we have to do in terms of photo- 
voltaic solar, in particular, is to balance the system costs. It has 
to be coming down at that same rate, much cheaper inverters, 
much easier to install type of modules, things of that nature. 

But I am optimistic that solar and wind, they are continuing to 
come down. 

Senator Udall. Secretary LaHood, you talked a little bit about 
railroads and bringing back the railroads. Is that an area where we 
could see significant savings in terms of energy efficiency and lower 
costs? 

Mr. LaHood. Take a lot of cars off the road, take a lot of CCL 
out of the air. It is much cleaner burning transportation, whether 
it is light rail or whether it is passenger rail. We know that it is 
cleaner burning, and we know that when somebody gets on a train, 
they are out of their automobile. The benefit of it will be enormous 
in terms of taking CCL out of the air. 

Senator Udall. And it is a big priority for your Department? 

Mr. LaHood. It is an $8 billion priority right now, and we hope 
with the help of all of you in the Senate and the House, we will 
continue to make it a priority. But it is President Obama’s vision 
and Vice President Biden’s vision. I want to give them the credit 
on this. Senator Sanders’ question is very important. We haven’t 
made the investments in America in passenger rail. But we are 
about to do it. 

Senator Udall. Thank you very much. Thank you, Madam 
Chair. 

Senator Boxer. Thank you very much. 

I just want to give us a little update on how we are proceeding. 
We are going to go down the list of everybody, and we are going 
to, therefore next call on Senators Lautenberg, then Merkley, 
Whitehouse and Cardin, of those who are here. We are not going 
to have any more rounds. So you should know that, because it is 
getting very late. 



260 


I also wanted to say, while colleagues are here, tomorrow we 
have panel one on jobs and economic opportunities, panel two on 
national security, and I guess is it two panels? Where is the third 
panel? Panel three on utility policies and panel four on adaptation. 
We have a very big agenda tomorrow. We start at 9:30. We are 
going to work throughout the day just taking a small lunch break. 
So I wanted to let colleagues know. 

Next on the list, Senator Lautenberg. 

Senator Lautenberg. Thanks, Madam Chairman. 

I am struck by the fact that as we look at the placards here we 
see, why not? Those are the questions that are asked. Why not do 
something positive? Why doesn’t it say, the reason that we want 
to do these things is a benefit to ourselves, to our families, to fu- 
ture generations, to the health and well-being of America? We don’t 
see any placards up there that say that. We say, why not. Well, it 
is the wrong attitude, I think, and that is what has got us in the 
trouble that we have. 

To Administrator Jackson and Secretary Chu, by the way, thank 
each one of you, you are a terrific panel, and a good start that we 
had, Madam Chairman, with John Kerry here. 

The Intergovernmental Panel on Climate Change, based on the 
research of leading scientists around the world, says U.S. has got 
to cap emissions to at least 20 percent below 2005 levels by the 
year 2020. A recent study says that we can reduce our emissions 
by 17 percent by 2020 without adding to that cost using just energy 
efficiency. 

Now, do either one of you, you first, Mr. Secretary, agree that we 
or doubt that we can’t achieve a 20 percent emissions reduction by 
the year 2020? 

Mr. Chu. Oh, it is achievable, but you have to look at every cor- 
ner. And also, I forgot to mention, that would also include, in addi- 
tion to efficiency, there are offsets: reforestation, agricultural, ways 
of changing agricultural practices. That is also part of the mixture. 
Some of the other technologies that I talked about, like nuclear and 
coal; it is going to take a while to get them on. But you can pro- 
mote the renewables that we do have. The cost is going down. 
Wind is approaching parity with new power in terms of coal or gas. 

So if you look at all the sectors and say, you can say, yes, we 
can do this. But you have to look across the board. 

Ms. Jackson. And Senator, the only thing I would add to my col- 
league here is that the clock is ticking. So every time we don’t have 
legislation, every time we don’t move forward, every time we don’t 
have a price on carbon, we are losing precious time that might help 
us get to that 2020 goal. So we are actually racing against the 
clock. It doesn’t help to start in 2015. 

Senator Lautenberg. But you each agree that we can do this? 

Ms. Jackson. Yes, we have to. 

Senator Lautenberg. And the Intergovernmental Panel and the 
Union of Concerned Scientists says that we need to be on that kind 
of a glide slope in order to get our long range objective, which is 
a longer time than I may be here. No? Thank you very much for 
that assurance. 

[Laughter.] 



261 


Senator Lautenberg. Secretary LaHood, good to see you here. 
We have had a chance to get to know one another over the period 
of time that you are serving. You are getting really good at this job, 
I want to tell you. 

So when we look at Amtrak, other forms of passenger rail, they 
have a need to be eligible to receive that funding. What is the role 
that passenger rail can play in lowering congestion? You described 
preventing pollution, reducing our dependence on oil. Do you have 
any kind of an estimate that tells us what we can achieve there? 

Mr. LaHood. I will get you an answer for the record, because I 
would like to be specific on that. But we know every time you get 
someone out of their car, you reduce CCL. The work that we have 
done with the EPA and the Administrator, Lisa Jackson, on getting 
to a much better gasoline standard for automobiles by 2012 and 
2016 is enormous. Every time somebody uses mass transit, whether 
it is a bus or light rail or Amtrak, we know that they are out of 
their car, we know that car is not on the road. 

But I will be happy to get you the statistics. And we know that 
we have some really good proposals coming in to us that are in the 
Department for passenger rail. And we are evaluating those and 
hopefully we will make some decisions on the $8 billion later this 
year. 

[Mr. LaHood’s response to the above question follows:] 

Properly designed intercity passenger rail service can play an important and si- 
multaneous role in all three — easing congestion, relieving pollution, and enhancing 
energy independence. Passenger rail can accomplish all this by offering competitive 
door-to-door travel times at affordable fares, thus diverting substantial traffic from 
the energy intensive air and automobile modes. 

For example, the Department’s commercial feasibility study (CFS) of high speed 
rail 1 showed that in California, a new high speed rail system (analogous to that cur- 
rently proposed by the State) would generate 4.7 billion passenger-miles in 2020, 
of which 2.4 billion would be attracted from air and 0.9 billion from auto. These di- 
versions would help to ease congestion at airports and on highways. 

Furthermore, as discussed in the Department’s Vision for High-Speed Rail in 
America, intercity rail consumes about 25 percent fewer BTUs per passenger-mile 
than travel by automobile, and about 18 percent fewer BTUs than air travel. 2 These 
differentials, when multiplied by the volume of traffic diverted, result in substantial 
emissions and energy savings. For instance, the CFS projected a present value of 
air and highway congestion delay savings and emissions reductions of some $13 bil- 
lion (2009 dollars) from the California New HSR project alone. 

As regards energy independence, while even diesel powered trains can economize 
on fuel consumption over other modes, electrified railways have the added potential 
of being completely oil independent. Already today, Amtrak’s Northeast Corridor 
segment between New York and Washington obtains about 38 percent of its power 
from totally green and totally domestic hydroelectric power. 

For all these reasons, intercity passenger rail offers great promise of achieving 
congestion relief, pollution abatement, and energy independence, all at the same 
time — even as it increases the options and mobility available to travelers. 

Senator Lautenberg. Ms. Jackson, a lot about the cost of pass- 
ing a global warming bill. But the report by a former chief econo- 
mist at the World Bank found that the inaction on global warming 
could cost 10 times as much as transitioning to a clean energy 
economy, because of the increased risk of drought, flooding, water 
scarcity, rising sea levels, social disruption. How might our envi- 


1 High-Speed Ground Transportation for America (September 1997), the Department’s most re- 
cent corridor-by-corridor analysis of the operating and economic potential of high speed rail. 

2 The source is the U.S. Department of Energy, Transportation Energy Data Book, Edition 26, 
May 2007. 



262 


ronment be affected and our economy as well if we — the question 
is too much, this is too easy for you, and I don’t want to give you 
easy questions. You are better at the hard ones. 

So with that, I say, thank you very much, each one of you for 
your service and your being here today. Thank you, Madam Chair- 
man. 

Senator Boxer. Thank you, Senator Lautenberg. I think this cost 
of doing nothing is a very important point to keep on making. It 
is huge. And it is not in any of the economic models. We have to 
keep remembering that. 

Senators Merkley, Whitehouse and Cardin. 

Senator Merkley. Thank you very much, Madam Chair. 

The first question I wanted to address to Secretary Chu. The 
McKinsey study has laid out an analysis that we could achieve 17 
percent reduction in our carbon dioxide through energy efficiency 
alone. It is very interesting to look at some of the numbers. For ex- 
ample, the Lazar energy consulting firm has laid out the cost per 
kilowatt in energy efficiency as between zero and $50, whereas the 
complete range is below any form of new production. 

And in essence, because energy efficiency also reduces the power 
bills that folks pay, there is a real feedback that expands the pur- 
chasing power of citizens in our Nation. 

So given this set of facts, the low cost of energy efficiency, the 
significant impact that energy efficiency alone could have on carbon 
dioxide, are we under-investing in energy efficiency, even in this 
bill? Do we need to go further? Should we have a separate energy 
efficiency standard and really push all the concepts that are cost 
effective in that realm? 

Mr. Chu. Yes. The McKinsey study I know came out just this 
summer, said by 2020 you can actually decrease the energy con- 
sumption, the end use consumption by 23 percent of the aggregate 
consumption, which includes the generation of all those losses by 
26 percent. If you only count those investments based on net 
present value, that would make money. So the report actually said 
$680 billion savings, and you get 26 percent reduction in energy. 

However, there are many economists who differ on that state- 
ment. So we have actually been spending a lot of time digging into 
it, trying to understand. There are some barriers at work here. For 
example, if you want to retrofit your home, there are barriers, what 
economists would call market failures. Many people don’t know 
what to do. It is inconvenient. There is inertia, and there is also 
a finance barrier. 

So the short answer to your question is, if we overcome all those 
barriers, then we can start to recoup this. That was part of my ear- 
lier answer. Energy efficiency, you can’t just say make it happen. 
You have to be very proactive because of these market failures. 

Senator Merkley. Well, certainly I and many members of this 
committee would love to work with you as you dig deeper into 
those numbers and identify those barriers, how we might overcome 
them and go further in that effort. Because when you look at what 
you can do with energy efficiency alone, and give the fact that we 
are closing in on 9 percent below the 2005 levels already on carbon 
dioxide production, it starts to make it look like 20 percent by 
2020. That is an additional 11 percent. Isn’t that demanding? And 



263 


we could actually bridge that entire factor with energy efficiency 
alone if we really applied ourselves to it, a strategy that actually 
pays us back. 

Mr. Chu. I agree. We are rolling out a couple of things. For ex- 
ample, on retrofitting, it costs a lot of money. If you did it in a 
mass produced sort of way, like you get one-half of the entire block 
to sign on, so the energy auditor goes from house to house to house 
to house, as a trusted, certified auditor, and then the truck that 
blows in the insulation goes to house to house to house, all in the 
same block, you can easily see where the price can come down by 
a factor of two or three. 

And there is a trust, it is a social event, a block party. So we are 
going to be trying to pilot these things in the coming year to see 
if we can really bring down those costs. 

Senator Merkley. Thank you. 

Another aspect of energy efficiency is turning to electric vehicles. 
And my colleague, Lamar Alexander, noted that we could work to 
have 50 percent of our cars be electric over the next 20 years. I 
would reframe that a little bit differently in that I have read statis- 
tics that if we were to take and have the cars on our road all be 
able to go the first 30 miles on electricity, so they could potentially 
be hybrid cars rather than full electric, preserving additional 
range, but if all the cars could go 30 miles on electricity, we would 
reduce the carbon dioxide production, which is, assuming the elec- 
tricity comes from renewable sources, by 80 percent from passenger 
vehicles. Should we be working more to really push the frontier on 
the conversion of the American auto fleet. I would open this up cer- 
tainly to Secretary Jackson and Secretary LaHood and to yourself. 

Mr. LaHood. Let me just say this. I was in Detroit recently and 
visited all three of the American automobile manufacturers. I drove 
the Volt. It is the wave of the future. It is the way that, talk about 
a company that is forward thinking, GM is forward thinking on 
this. And so it is coming. And they get it. Because they know this 
is what the American people want, because the American people 
get it. It is an amazing vehicle, and it will be here soon. 

Senator Merkley. Thank you. 

Senator Boxer. We are going to move on, because we are over 
our time. 

Senator Whitehouse. 

Senator Whitehouse. Thank you, Madam Chair. First of all, I 
want to thank this very distinguished panel for being here. I know 
you are all very busy and have significant responsibilities. But I do 
think it is helpful for you to be up here, and I hope the fact that 
every single one right now of our Republican colleagues has de- 
parted, despite the fact that we have such a distinguished panel, 
including four Cabinet members here, helps give you a signal as to 
how difficult our lift is going to be on this issue with our col- 
leagues. 

A few quick points, the first, Secretary Chu, as you have heard 
from Senator Alexander and others, there is considerable interest 
in expanding our nuclear energy supply. The Navy does operate 
nuclear plants very safely. However, they do generate waste. And 
the waste is a considerable concern. I would urge that as you look 
at the nuclear component of our energy portfolio, you invest aggres- 



264 


sively in potential technologies that could take our existing nuclear 
waste and reconfigure it into fuel and turn it into value. I have 
heard estimates that the power contained in our nuclear waste, if 
properly reconfigured, could provide $2 trillion worth of energy, not 
only essentially free energy, but energy that actually comes at the 
savings of not having the disposal and national security risk costs 
of all of that. 

So I urge you to look very much in that area, and I will certainly 
be far more comfortable with whatever the nuclear strategy is if it 
has that investment in the future. One day we should be burning 
this nuclear waste as fuel and not having it a continuing hazard 
for thousands of generations into the future. 

Mr. Chu. I couldn’t agree with you more. In fact we have started 
a detailed look at this. If you look at the uranium you dig out of 
the ground, and you ask how much of the energy content of that 
uranium is actually used in our current light water once pass 
through cycle, after you have enriched, there is energy content in 
uranium 238. It is about 1 percent. Only 1 percent of the energy 
content is used. The rest is either depleted uranium or 

Senator Whitehouse. Let’s work together on making sure we do 
that. 

The next question is for Chairman Wellinghoff. FERC, I believe, 
has some oversight responsibility over the dispatch rules by which 
units are turned on and off. They are agreed by the local ISO, but 
they have to be filed and approved by FERC, if I am not mistaken. 

Mr. Wellinghoff. Yes, to the extent that there are organized 
wholesale markets with independent system operators, those inde- 
pendent system operators, the regional transmission organizations, 
in fact do file their tariff rules with FERC as to how they do dis- 
patch units within their footprint. 

Senator Whitehouse. It is my understanding that those dispatch 
rule do not take the environmental costs of the units into consider- 
ation whatsoever, and that all other things being equal, they would 
run a coal plant instead of a hydro plant because there is no ad- 
justment for the pollution costs. And I would like to work with you 
to see what might be necessary to have FERC take a look at that. 
Because as we all know, those environmental costs truly are eco- 
nomic costs. And to ignore them is to give an unwarranted subsidy 
to certain industries at the expense of others and the public health. 

Mr. Wellinghoff. We would very much like to work with you 
on that. In fact, I was in China 2 years ago, and they were talking 
about economic dispatch versus environmental dispatch, actually 
looking at environmental dispatch in China. So we were very inter- 
ested in looking at the feasibility of that in this country and how 
it affects the economics of the overall system. We would like to do 
that very much. 

Senator Whitehouse. Good. Finally, Administrator Jackson, the 
last point that I would like to make with you regard to some of the 
comments that have been made about Clean Air Act enforcement. 
The perspective that I have on this is that for many years, cor- 
porate polluters in the Midwest have been ducking and dodging 
around the Clean Air Act. They have not met their responsibilities. 
What they have done is built smokestacks, higher and higher 
smokestacks, now reaching as high as 1,000 feet. 



265 


Now, a smokestack doesn’t make the air any cleaner. What it 
does is it takes the poison, the pollution, and it exports it to other 
States. Right now, in Rhode Island, on a bright summer day, the 
radio in the morning could easily announce that today is a bad air 
day. And infants and the elderly and people with breathing disabil- 
ities should stay inside in the air conditioning. And it is not be- 
cause of local emissions. It is because of what is being rained in 
on us by these power plants. It is not just my State, Senator Lau- 
tenberg’s State is downwind, Senator Cardin’s State is downwind, 
Senator Sanders’ State is downwind, Senator Gillibrand’s State is 
downwind. 

So as we look at this Clean Air Act, there are a great number 
of us who believe, I should say, there are a great number of us who 
are in that geographic position. I very, very strongly believe it is 
time that these power plants were held to account. They have 
dodged around the law for too long. And their corporate lobbyists 
have won against our children’s lungs. I for one am fed up with it. 

So I hope you will stand firm on the Clean Air Act. I, at least, 
and I hope many of my colleagues, will support you on that. 

Senator Boxer. Thank you so much, Senator. 

Senator Cardin. 

Senator Cardin. Madam Chair, thank you very much. 

I think each member of the committee has expressed our appre- 
ciation for you all being here. I am going to go a little bit further. 
I thank you for your public service, taking on the incredibly impor- 
tant jobs that you are taking on in the Obama administration and 
doing such an effective job on your individual portfolio, but also un- 
derstanding it is part of a national strategy as we deal with the 
energy issues. 

I thank you for that commitment to get the job done, going well 
beyond what is your immediate responsibility. 

I want to just underscore two points that were made. Secretary 
Chu, your point about conservation in our energy policy, critically 
important; and Secretary LaHood, about investment and how we 
make our investments. Let me start first by saying, I agree com- 
pletely on the comments about passenger rail, but I take that a lot 
further. I want to talk about transportation for a moment. Trans- 
portation represents 30 percent of our greenhouse gas emissions 
and 60 or 70 percent of our oil use. So it is a huge issue. And we 
could do a lot better. 

I want to get to public transportation, going well beyond just pas- 
senger rail. I first start off by saying, this legislation makes a huge 
investment in this area. Thank you, Madam Chair. Thank you for 
what you have done for public transportation in this, in your mark. 
It will make a huge difference on the infrastructure we need to con- 
serve energy, as well as to have a more efficient way to have trans- 
portation needs met. 

But I want to get to the second point, which is how you use your 
existing authorities. I would underscore the point that Senator 
Whitehouse made about Administrator Jackson. You have put the 
Environment back into the Protection Agency. We thank you for 
that. You have used the tools you have. You have tools today that 
you can use, and you are using those tools. 



266 


And Secretary LaHood, I know you have a huge budget. Not big 
enough, you would like to have more, we would all like you to have 
more, we would like you to have more predictable funding. But we 
do subsidize the passenger car more than we do public transpor- 
tation in this country. And we need to change that. It is not going 
to be easy. 

But we need to look at how we use the existing resources we 
have at our disposal. So I guess my point is, we need to get this 
bill done. This bill provides opportunities for us to make the type 
of investments in transportation that will make our country more 
secure, much more competitive and certainly friendlier toward the 
environment. 

And by the way, for those who live in the Washington area, 
maybe I could have gotten here in time if we had a better transpor- 
tation system in place for commuting. It affects all of our lives. It 
is the second worst congested area in the country, next to New 
York. We could double the number of people using public transit 
here. We just don’t have the capacity, and it is old, and it needs 
investments. 

So it is a matter of investment. This bill will make a difference. 
But I just urge you all, in each one of your areas, be aggressive 
with the tools that are currently available. This bill is meant to 
supplement, not to be the sole effort we have in the type of commit- 
ments we make to an energy policy in this country. 

That is my message. Let’s figure out a way we can get this budg- 
et more focused on what we need to do as we work to give you the 
additional tools that are necessary. Thank you for your commit- 
ment. I have a lot of confidence that what you are doing is going 
to make a huge difference. We need to work together to get the job 
done. 

Thank you, Madam Chair. 

Senator Boxer. Thank you very much. 

Let me just thank everybody. I am very proud to say that Presi- 
dent Obama today, in a speech, noted the markup in this Environ- 
ment and Public Works Committee today. He said he believes that 
a comprehensive piece of legislation is what needs to happen. I am 
paraphrasing here. He said that is finally going to make clean en- 
ergy the profitable kind of energy in America. Legislation that will 
make the best use of resources we have in abundance through 
clean coal technology, safe nuclear power, sustainably grown 
biofuels and energy we harness from the wind, waves and the Sun. 

So he noted then that we are having these hearings. 

I just want to say to all of you, thank you so much, not only for 
your eloquence today, but just for working with us these many, 
many, many weeks and months to get to this stage. And there are 
always naysayers when you are about to embark on change. But 
positive change only comes with courage. And all of you have 
shown that courage here today. 

Thank you very much. We stand adjourned until 9:30 tomorrow. 

[Whereupon, at 1 p.m., the committee was adjourned, to recon- 
vene at 9:30 a.m. the following day.] 

[An additional statement submitted for the record follows:] 



267 


Statement of Hon. Kirsten Gillibrand, 

U.S. Senator from the State of New York 

Thank you, Chairman Boxer, for your leadership and hard work on this very crit- 
ical legislation. 

I’d like to recognize my Chairman from the Senate Foreign Relations Committee, 
Senator Kerry, who has joined us today, for his dedication to these issues. 

I’d also like to thank our witnesses for taking the time to be here today to provide 
their perspective and expert analysis of this legislation. 

S. 1733, the Clean Energy Jobs and American Power Act, is the platform to move 
America forward on a path to achieve energy independence, revitalize our economy 
by creating green jobs here at home, and protect our environment from the threats 
of global climate change. 

I have heard from thousands upon thousands of New Yorkers of all age groups, 
from Brookhaven to Brooklyn, to Buffalo, who have called, written, visited my of- 
fices, and attended events to push for strong legislation that will transition our Na- 
tion to a clean energy economy. 

I am confident that the Clean Energy Jobs and American Power Act is the frame- 
work that will do just that. 

The passion and advocacy of my constituents have been invaluable leading up to 
these important hearings, and I thank them for their continued support to see 
strong climate change legislation across the finish line. 

Over the course of these hearings I look forward to receiving testimony from wit- 
nesses representing business interests and local governments from around the coun- 
try, describing how this legislation will lead to American prosperity and a dem- 
onstration of the kind of innovation and ingenuity that our country is built on. 

In particular, I am interested in exploring a number of aspects of this legislation 
that are critical to my constituents in the State of New York. 

First, the Clean Energy Jobs and American Power Act includes a framework for 
significant investments in carbon reducing transportation planning. 

The development and expansion of mass transit systems are critical to New York- 
ers who take one-third of the Nation’s mass transit rides and are vital to mitigating 
America’s greenhouse emissions, 30 percent of which comes from the transportation 
sector. 

I’m also interested in the many ways that this legislation prioritizes and 
incentivizes energy efficiency, which as we all know is one of the most reliable and 
cost effective ways to reduce energy bills for consumers and cut harmful emissions. 

S. 1733 includes a provision I authored, entitled the Green Taxis Act. This legisla- 
tion will allow municipalities to set standards for emissions and fuel economy for 
taxicabs using Federal minimums and predicated on the commercial availability of 
vehicle technologies. 

These provisions will be beneficial to many cities across the United States. 

Replacing the current fleet of taxicabs on New York City streets with fuel efficient 
vehicles would reduce greenhouse gas emissions by more than 296,000 tons, or the 
equivalent of taking 35,000 cars off the road. 

In addition, switching to fuel efficient vehicles would save each driver an average 
of $4,500 annually in gas costs and reduce the upward pressure on passenger fares. 

As I have stated in previous hearings, one area that is of vital concern to me is 
providing effective oversight for the carbon market created by this legislation. 

Ensuring that we have an active carbon market that allows for the type of 
customization that end users need in order to finance a new clean power facility, 
large scale solar or wind project, or international reforestation project is central to 
this legislation’s success. 

I look forward to working with my colleagues, Senators Baucus and Klobuchar 
and Chairman Lincoln in the Agriculture Committee, as we engage in comprehen- 
sive market reform that will set a framework for how carbon markets are regulated 
to protect consumers from market manipulation while facilitating investment in 
emissions reductions. 

I am particularly interested in the provisions in this legislation that will allow 
our farms and forests to engage in activities that have real, measurable benefits in 
emission reductions. 

Ensuring that New York’s dairy farms and private forest lands can participate in 
activities that help us reach our climate goals is important to me. 

Just as important as what is in this legislation, is what is not. 

S. 1733 does not include provisions that were part of the House passed version 
that I believe are detrimental to reaching the goals of comprehensive climate change 
legislation. 



268 


The Clean Energy Jobs and American Power Act preserves Clean Air Act author- 
ity to regulate the Nation’s oldest and dirtiest coal plants. 

These protections are critical to New Yorkers, as we are on the receiving end of 
air pollution from many of these plants — contributing to acid rain, harming natural 
resources such as the Adirondacks, increasing contamination in our waterways, lim- 
iting the number of fish we can eat, and increasingly growing asthma rates that 
raise our health care costs. 

The Clean Energy Jobs and American Power Act will lead to long-term economic 
prosperity, energy security, and the protection of our environment for future genera- 
tions. 

Chairman Boxer, I want to thank you, my colleagues on the committee, and the 
staff for all of their hard work on this legislation. 

[Additional material submitted for the record follows:] 



269 


Statement For the Record 
Secretary Shaun Donovan 
Secretary of Housing and Urban Development 
Before The 

Committee on Environment and Public Works 
United States Senate 
October 30, 2009 


Chairwoman Boxer, Ranking Member Inhofe, and members of the Committee, I appreciate this 
opportunity to submit a statement for the record on the critical role of and potential impact of 
climate change on our cities, metropolitan areas and rural communities. I would like to 
commend you. Senator Kerry and your colleagues for the important work that you have 
undertaken with S. 1733, the Clean Energy Jobs and American Power Act, to improve our 
nation’s competitiveness in the w'orld, reduce our impact on climate change, and ensure 
America’s prosperity in the 21 st century. This bill represents an important first step toward 
passage of comprehensive energy and climate legislation in the Senate. 

The Department of Housing and Urban Development has a strong interest in the outcome of this 
important legislation. The built environment is now universally recognized as a significant 
source of greenhouse gas emissions, and an important part of the solution to solving the critical 
environmental and economic challenge of our time: global warming. 

In recent years, we have made great progress in our understanding of the sources behind carbon 
emissions. As the American people are well aware, transportation accounts for 28 percent of all 
greenhouse gas emissions according to EPA’s inventory of green house gas emissions. But 
most people would be surprised to learn that commercial and residential buildings account for 
almost 40 percent of total emissions. 1 Housing is a significant source, accounting for more than 

1 U.S. Department of Energy, 2008 Buildings Energy Data Book, Table 1.4.1, Carbon Emissions for U.S Buildings by 
Year {39% of total). Table 2.4.1, Carbon Dioxide Emissions for Residential Buildings (21% of total), Table 3.4.1, 


1 



270 


one half of emissions associated with buildings, in part because of large transmission losses in 
the residential sector. 

And it’s not just emissions from buildings, but also the location of the buildings themselves that 
contribute to greenhouse gas emissions. Driven in part by the advent of the automobile, as well 
as the availability of low-cost fuel, we have seen an explosion of dispersed development in our 
metropolitan areas, with increasing numbers of families moving further out from our urban 
centers in search of affordable housing. In many cases the result has been dramatic increases in 
vehicle miles traveled, and significant increases in carbon emissions. So it is now clear that the 
built environment - how and where we build - will be a key element in any effort to address 
carbon emissions and climate change. 

But this is not just an environmental issue: it is also about the health and economic vitality of our 
nation’s cities, counties and rural communities. While suburban and exurban growth have 
provided opportunities for millions of Americans, and in many cases has served them well, we 
also see families struggling with long commutes to work, increasing dependence on the car for 
most of their travel, and a growing share of their household budgets devoted to transportation 
expenditures - in many instances, significantly reducing the housing affordability gains. 

For all our housing challenges today, we now see that that the goal of a “decent home for every 
American” can therefore only be achieved in the broader context of the dynamic changes that 
have been taking place in cities, suburbs and metropolitan regions. The average American 
household now spends 34 percent of their annua! budget on housing and 1 S percent on 
transportation. More than half of their budgets are wrapped up in these two expenses alone. 

For low-income working families, the impact is particularly serious - with transportation 
representing almost a third of their costs. The extremes can be eye-opening - the average 
Houston-area household spends over $1 1,000 per year on transportation. For these families, the 
expense of transportation poses a particular burden. And in many metropolitan areas, working 
families are spending more on transportation than on housing. 

Carbon Emissions for Commercial Buildings (18% of total). Total excludes emissions from industrial buildings. Note 
that EPA's 2009 Inventory of Greenhouse Gas Emissions - Fast Facts shows a somewhat lower share for buildings 
(34.7%). 


2 



271 


This mismatch between good housing choices and good transportation choices is particularly 
acute in metropolitan regions - which have increasingly become the engines of America’s 
growth. These metropolitan regions look very different from those that existed in the mid-1960’s, 
when HUD was created and much of our transportation system was being built. The populations 
of these areas and employment opportunities available in them are now widely dispersed, with 
only 22 percent of the jobs in the top metropolitan areas located within 3 miles of the central 
business district. 

Fortunately, the two criteria for successful and sustainable urban and metropolitan growth are 
now well-known: location efficiency and energy efficiency , and there are several important 
elements of the bill that address these goals. Communities across the country are adopting these 
elements as central components of alternative housing, land use and transportation plans - with 
promising and encouraging results. 

In order to lower carbon emissions in the transportation sector, a “four legged stool” will be 
needed: one leg related to vehicle fuel efficiency; another to the carbon content of the fuel itself, 
one for vehicle and system operations, inclusive of traveler information and intelligent highway 
systems; and a fourth for the amount of driving or vehicle miles traveled (VMTs). It is this last 
leg, which has generally received less attention, where location efficiency can play a significant 
role. We cannot afford to see projected fuel economy gains erased by continued growth (at 
current rates) of VMTs, which according to the Energy Information Administration’s 2007 
Annual Energy Outlook is projected to grow by 59 percent by 2030, compared to only 23 percent 
population growth, and a 12 percent gain in fuel economy over the same period. 2 

Preliminary models for California's compliance with A.B. 32 greenhouse gas reduction goals, 
show that there are huge carbon reduction gains to be made by encouraging more compact, 
location efficient building, with good access to public transportation, preferably in existing 
communities. Alternative growth scenarios for the Salt Lake City region through the Envision 
Utah plan show similar reductions. Local plans, such as Chicago’s Climate Action Plan, and 
New York's PlanNYC 2030 show that carbon emissions can be reduced by adopting location- 
and energy- efficient building practices and policies. In Atlanta, performance data for Atlantic 

2 Energy information Administration, Annual Energy Outlook, 2007 


3 



272 


Station, a mixed-use transit-oriented redevelopment of an abandoned steel mill site, show that 
residents drive an average of 9 miles per day, in stark contrast to a regional average of more than 
30 miles per day - exceeding initial projections of a 36 percent reduction in vehicle miles 
traveled and emissions compared to conventional development. 3 

These local projects point to the need to coordinate federal action across agencies to ensure that 
location and energy efficiency are embedded in federal programs and policies as well. I have 
joined with my counterparts at the Department of Energy, the Department of Transportation, and 
the Environmental Protection Agency, as well as other agencies, to ensure that, going forward, 
this approach is followed. 

In the building sector, we have made a strong commitment to energy efficient green building in 
spending our Recovery Act dollars. Some $4 billion in Capital Fund dollars are going to public 
housing authorities for energy efficiency and other upgrades, including $600 million specifically 
targeted to high performing and energy efficient carbon reduction projects. Another $250 
million is being provided for green energy retrofits in multifamily housing, and additional funds 
are being spent on energy efficiency through our Native American programs, as well as through 
the Neighborhood Stabilization Program (“NSP2”), both of which have strong incentives for 
energy efficiency and green building. Looking ahead, our FY 2010 budget proposal includes a 
$100 million Energy Innovation Fund that will help catalyze a home energy retrofit market 
through innovative public and private sector financing, and through re-engineering FHA energy 
efficient mortgages. 

We have also formed a new Partnership for Sustainable Communities with DOT and EPA that 
will, for the first time, ensure that housing and transportation planning and resources are 
coordinated to support more compact, mixed use development, in proximity to a broad range of 
transportation choices that will yield reductions in carbon emissions. Our agencies have adopted 
a set of shared sustainability principles, that I believe represent an important new playbook for 
federal investments and policies that impact land use, transportation, housing and the 
environment in our cities, suburbs, counties and rural communities. 


3 Reid Ewing et al. Growing Cooler, the Evidence of Urban Development and Climate Change. 


4 



273 


We are moving to implement these principles through our Fiscal Year 2010 budget request, 
which includes several proposals that support our vision of sustainable growth, including funding 
to support a new generation of integrated land use, transportation and environmental planning at 
the metropolitan and regional level, as well as in rural communities. 

Building on these partnerships and these coordinated strategies, we believe climate change 
solutions can be achieved through smarter place-based development. HUD in partnership with 
EPA, DOT and DOE is poised to assist states and municipalities to help develop and review' 
carbon reduction plans. This is consistent with, and will build on, the strong partnership that we 
have already established with these agencies through our Partnership for Sustainable 
Communities. 

Thank you for your attention and we look forward to providing the Committee with additional 
information or input as you move ahead in your deliberations. 


5 



274 


STATEMENT FOR THE RECORD OF 

GARY F. LOCKE 
SECRETARY OF COMMERCE 

BEFORE THE 

COMMITTEE ON ENVIRONMENT AND PUBLIC WORKS 
UNITED STATES SENATE 

OCTOBER 27, 2009 


Chairwoman Boxer, Ranking Member Inhofe, and members of the Committee, 1 appreciate this 
opportunity to submit a statement for the record on S. 1733, the Clean Energy Jobs and 
American Power Act, and the Department of Commerce’s role in fostering America's transition 
to a new clean energy economy. I am pleased that the Senate is moving forward in its 
consideration of this important bill, and vvant to thank Senator Kerry and Chairwoman Boxer for 
their leadership and hard work on this legislation. 

Home to world-class climate scientists, economic development experts, and trade and investment 
specialists, the Department of Commerce is uniquely situated to help unleash the economic 
opportunity presented by America’s transition to cleaner sources of energy. For the past one- 
hundred years, American businesses have experienced unprecedented growth. Throughout that 
period, fossil fuels were available at low costs, and the greenhouse gas externalities associated 
with using fossil fuels were not addressed. Unequivocally, that business environment has 
shifted. The methods by which we produce and consume energy are environmentally 
unsustainable and pose a risk to our nation's security and stability. The transition to a clean 
energy economy should help to mitigate many of the consequences of climate change, and 
would also be an engine of job creation and economic growth for decades to come. 

Let’s be clear. American businesses are stepping up to the challenges posed by climate change - 
developing innovative solutions to reduce greenhouse gas emissions, utilize energy more 
efficiently, and adapt to some of the climate changes already occurring. For example, in 2007, 



275 


not one U.S. company was listed in the top ten global solar companies. Today, First Solar, based 
in Tempe, AZ, is the largest solar company in the world. 

But businesses are not investing in clean energy for only altruistic reasons. They know 
international competition for the clean energy market - and the good jobs it can provide - is 
fierce. 1 am not able to be with you in person because 1 am co-chairing the 20th session of the 
U.S.-China Joint Commission on Commerce and Trade (JCCT) in Hangzhou, China. China is 
currently the second largest energy consumer behind the United States, and China’s demand for 
energy continues to increase exponentially. As such, the Chinese market presents tremendous 
opportunity for U.S. clean energy businesses. To capitalize on this opportunity, just this week, 
the Department of Commerce facilitated a Memorandum of Understanding (MOU) between the 
U.S. Trade and Development Agency and China’s Ministry of Commerce to support the U.S.- 
China Energy Cooperation Program (ECP), an innovative new public-private partnership that 
will deploy the expertise of U.S. companies to help develop clean energy solutions in China. 

But, we cannot ignore the race to lead in this competitive market. China is investing more than 
$12 million an hour in clean energy and efficiency. These investments are not just to meet its 
own domestic energy needs and climate challenges, they are designed to turn China into the 
global destination for clean energy innovation. The Chinese government is supporting the 
development of clean energy and energy efficiency industries to meet the demands of the world. 
The United States must step up if we do not want to witness the capital, the businesses and the 
good-paying jobs associated with the clean energy economy ending up overseas rather than in 
communities across America. 

As Secretary of Commerce, I speak daily with business leaders, innovators and entrepreneurs 
eager to capitalize on the opportunities presented by clean energy but stymied by the 
uncertainties in the marketplace. Too many companies and entrepreneurs and investors are 
sitting on the sidelines because of the lack of certainty in U.S. policy. The Congress needs to 
pass energy and climate change legislation as soon as possible to provide that certainty. The 
longer the United States waits, the bigger the headstart other countries will have in establishing 
dominant clean energy and energy efficiency industries to serve the world. 


2 



276 


Just last week, 1 hosted approximately 100 clean energy business leaders at the White House for 
a discussion on American competitiveness in the clean energy economy. We heard from a 
Michigan company that partners with the Department of Commerce's Sustainable Manufacturing 
Initiative to help manufacturers become more energy efficient and reduce their power costs. 

And, we heard from the CEO of Easy Energy based in Welcome, Minnesota, how a modular 
ethanol production system could translate renewable energy into economic opportunity for rural 
communities. The conversation that ensued was lively but the message was clear: American 
business needs proper market incentives that encourage long-term investment in clean energy. 

We need comprehensive energy legislation to send a signal to private capital that it is safe to 
invest for the long-term in clean energy technologies and compete with the rest of the world in 
this area. To support the creation of good, well-paying jobs in this new economy, we also need 
to start training our workers now. Finally, we need comprehensive energy legislation to begin to 
address the potential for environmental damage that will severely and negatively impact the 
business environment if left unchecked. 

To be successful in this endeavor, we need not only to give businesses the certainty of a coherent 
national framework, we must be sure this framework is built on the underpinnings of sound 
climate science. We must also deliver timely and reliable climate information to aid public and 
private sector decision-makers in making sound economic and social choices. That is where the 
Department's National Oceanic and Atmospheric Administration (NOAA) is indispensable. 

NOAA is one of the world’s leaders in providing the scientific understanding of climate change 
and its impacts. NOAA’s broad climate mandate was established in 1978, and its capabilities 
span operational climate observing networks, global greenhouse gas monitoring, climate 
predictions and projections, climate research and climate data stewardship. With these 
capabilities, and in partnership with other Federal agencies, NOAA continues to provide 
successful leadership and support to domestic and global scientific assessments of climate 
change science and impacts, including the recent U.S. Climate Impacts report and those of the 
U.S. Global Change Research Program and the Intergovernmental Panel on Climate Change. 

NOAA is responsible for monitoring and predicting global and national climate conditions. 
NOAA’s climate data provide information about changes and variations in climate dating back 


3 



277 


many decades to hundreds of thousands of years. These data are critical to predicting and 
projecting future climate using some of the world’s best climate models. 

NOAA also monitors the carbon cycle in the atmosphere and oceans, and has been doing so for 
40 years, taking observations on the ground, under the sea, and in space. NOAA’s 
measurements and modeling of carbon dioxide and other greenhouse gas concentrations in the 
atmosphere are among the most comprehensive in the world - and are widely considered among 
the best available modeling of carbon sources and sinks. These measurements are also 
fundamental to understanding and monitoring ocean acidification. 

This information is not merely of academic interest. These measurements will play an important 
role in verifying the effectiveness of our domestic and international policies through independent 
verification of bottom-up emissions - from both domestic and international sources - and allow 
us to understand whether emissions reductions are having their intended effects on our climate. 

In addition, the Department’s National Institute of Standards and Technology (NIST) supports 
climate research and monitoring systems by providing the traceable measurements necessary to 
ensure accuracy and comparability. NIST also has programs aimed at improving industrial 
processes to reduce carbon at the source. For example, NIST focuses on documentary standards, 
test beds for developing new and existing technology, and testing and verification programs. 

More and more, decision-makers from the private and public sectors are demanding improved 
information to understand the changing climate, impacts to the economy and the environment, 
and emerging opportunities. For example, until now, the Nation’s systems and infrastructure for 
water, energy, transportation, agriculture, and other sectors have been designed and built based 
on knowledge about local conditions and our understanding of the past. As climate changes, 
much of this infrastructure will become obsolete unless it is reconfigured in light of new patterns 
of wind, water, temperature and other factors. 

To bridge climate science and these needs of decision makers now and in the future, NOAA, 
through partnerships and user engagement, is continuing to lead the way by providing an 
evolving suite of climate information and services to other federal agencies, state and local 
governments, and the private sector as they make decisions about adjusting to climate change. 


4 



278 


For example, the climate data from NOAA’s air freezing index program provides information to 
allow building foundations to be more economically constructed, reducing the materials costs of 
the U.S. construction industry by approximately $300 million per year. (Economic Value for the 
Nation , U. S. Department of Commerce, National Oceanic and Atmospheric Administration, 
National Environmental Satellite, Data, and Information Service, September 2001 .) 

To respond to these demands for climate information, our national climate policy should include 
the establishment of a National Climate Service. A national climate service should provide 
credible and authoritative climate information and services across sectors and geographic regions 
to assist the Nation in making informed decisions related to climate change mitigation and 
adaptation. 

Chairwoman Boxer, Ranking Member Inhofe, and members of the Committee, thank you for 
your attention and the Department of Commerce looks forward to providing the Committee with 
additional information or input as you move ahead in your deliberations. 


5 



279 




722 lAScrcet N'AX' j 
Fourth Floor 

\\!t>hingn >n. 1 >.( 

20005 

'J: ( 202 ) 785-0266 
F:(202>785-026l 
‘iiriew.atT.org 


flERICANS 

OTAX REFORM 


Testimony Submitted for the 

Full U.S. Senate Environment and Public Works (EPW) Committee hearing entitled, 
“Legislative Hearing on S. 1733, Clean Energy Jobs and American Power Act” 

Tuesday, October 27, 2009 

My name is Grover G. Norquist, and I am the founder and President of Americans for Tax 
Reform. ATR was founded in 1985 at the request of President Ronald Reagan and serves as a 
non-partisan organization that opposes any and all tax increases. 

I would like to thank Senator David Vitter (R-LA) and his office for introducing my testimony in 
the Congressional record for this hearing. The Cap and Trade legislation this Committee is 
considering is being sold as an attempt to control the climate; however there is no conclusive 
proof that it will have any effect. Rather there is considerable evidence that this legislation will 
have a disastrous economic effect on the country'. This proposal, S. 1733, the “Clean Energy Jobs 
and American Power Act,” will negatively impact the economy, hurt families, and kill jobs. It will 
also make the United States less competitive in die global marketplace while allowing other 
countries take the lead with an unrestrained economy. 

A recent Freedom of Information Act (FOIA) request, issued by the Competitive Enterprise 
Institute (CEI), to the U.S. Treasury' Department reviled the government’s internal reports 
estimate a cap and trade program will cost between $100 to $200 billion dollars in new taxes per 
year. This is the equivalent of a hike in personal income taxes by about 15% and the average 
American household would pay an additional $1,761 a year. 1 Another study by The Institute for 
Energy’ Research (IER) found that Waxman-Markey will increase taxes on electricity’ from coal 
and natural gas-fired power plants by $1 billion. 2 

Americans will also feel increased pain at the pump as a result of this legislation. A study by 
Senators Kay Bailey Hutchinson (R-TX) and Kit Bond (R-MO) found that the Waxman-Markey 
bill will result in a $3.6 trillion gas tax. That breaks down to an additional $2.0 trillion tax on 
gasoline, a $1.3 trillion tax on diesel fuel, and a $330 billion tax on jet fuel. 3 

These massive new taxes on energy’ producers and every American family will be far more 
destructive to those in the lower and middle class. On September 12, 2008, then candidate- 
Obama said, “I can make a firm pledge. Under my plan, no family making less than $250,000 a 
year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital 
gains taxes, not any of your taxes.” However, later, President Obama said, “Under my plan of a 
cap-and-trade system, electricity rates would necessarily skyrocket.” 4 The President’s own 
Treasury- Department noted that the increase in rates would be the equivalent of a 15% personal 
income tax increase by raising an estimated $100 to $200 billion per year. 


1 McCulIagh, Declan, “Obama Admin: Can and Trade Could Cost Families SI, 761 A Year.” CDS News. 
September 1 5, 2009. http://www.cbsnews.com/blogs/2009/09/15/taking_liberties/entry53 14040.shtml. 

2 “The Other Half of Waxman-Markey: An Examination of the Non-cap-and-trade provisions.” Tile 
Institute for Energy Research. October 12, 2009. 

http://wvw.instituteforenergyresearch.org/2009/J0/12/the-other-half-of-waxrnan-markey-an- 

examination-of-the-non-cap-and-trade-provisions/. 

3 Hutchinson, Kay Bailey and Bond, Kit, “Climate Change Legislation: A $3.6 Trillion Gas Tax.” 2009 

http://hutchison.senate.gov/resources/HutchisonBondGasTaxReport.pdf. 

4 Borelii, Deneen, “Rising energy costs triggered by cap-and-trade will harm low-income workers in inner 
cities.” The Baltimore Sun. October 22, 2009. http://www.baltimoresun.com/health/sns- 
200910220803mctnewsservbc-capandtrade-minoriti,0,7394488.story. 


280 


! AMERICANS 

/?.' VAX REFORM 

President Obama, not candidate Obama was right. Prices will skyrocket, and it will be those that 
make less than the $250,000 he promised that will be harmed the most. 

As the Hutchinson-Bond report explained, the average household spends five percent of its 
annual budget on fuel costs. For most lower and middle class working families, gasoline is 
necessary to get to work and make a living. These families also tend to have longer commutes 
than the rich and will be hit harder by increased fuel costs. 5 6 

The Institute for Energy Research has found that the Waxman-Markey bill will result in a $14 
billion redistribution of resources from the poor to the rich. This is primarily because shareholders 
and those involved in trading allowances will be in a position to make money, while those with 
lower incomes will be paying for the increased taxes and costs/ 1 

Increased burdens on lower class families will also come in the form of new regulations on home 
sales. The Waxman-Markey bill contains 397 new regulations, one of which requires almost all 
homes to undergo environmental inspections prior to sale. These inspections will increase home 
prices, as additional inspections and repairs increase base prices. This cost increase is passed on to 
the buyers making home ownership more difficult. This will also eliminate the “fixer-upper” type 
homes upon which many low income buyers depend. Many low income families buy less-than- 
perfect homes because they ate cheaper and they can perform needed repairs and improvements 
themselves. If the home has to pass an inspection prior to sale, the seller will have to make all of 
tire necessary improvements before selling the home. Tire cap and trade proposal considered 
today will make home ownership nearly impossible for millions of Americans. 7 8 9 

Beyond the direct economic impact of this energy tax, it will also dramatically change the 
American way of life. Increased travel and commuting costs coupled with an increase in cost, to 
heat and cool homes and keep the lights on means many families will have to make a major shift 
in priorities. They will also have limited discretionary income for consumer purchases. Families 
will be forced to live in smaller houses and drive smaller cars. Communities will be constricted 
because of increased commuting costs, and people will have fewer employment opportunities/ 

Increased energy costs and regulator}- burdens are going to destroy jobs in America, sending them 
overseas to countries like China and India. The Black Chamber of Commerce estimated cap and 
trade would kill over 2.7 million jobs every year through 2030. lire Heritage Foundation 
estimated 1.1 million jobs lost from 2012- 2030 and 2.5 million each year after that Even the 
liberal Brookings Institution estimated 1.7 million jobs would be lost per year.' 


5 Hutchinson, Kay Bailey and Bond, Kit, “Democrats' hidden gas tax: Extra $ 1 per gallon at the pump 
will mean all pain, no gain.” The Washington Times. October 2 1, 2009. 

http://www.washingtontimes.com/news/2009/oct/21/democraLs-hidden-gas-tax/7feaEbome_commentary 

6 “Blockbuster Study: Working-Class Bears Burden of Cap-and-Trade.” The institute for Energy 
Research. September 29, 2009. http://www.instituteforenergyrcsearch.org/2009/09/29/blockbuster-study- 
working-class-bears-burden-of-cap-and-trade/. 

7 Young, Ryan, “Cap-and-Trade Will Depress Home Prices.” Competitive Enterprise Institute. September 
23,2009. http://cei.org/articles/2009/09/23/cap-and-trade-will-depress-horrie-priccs. 

8 Franc, Michael, “Cap and Trade vs. the American Dream: The House’s bill is an economic disaster that 
keeps getting worse.” The Heritage Foundation. May 22, 2009. 
http://www.heritage.org/Press/Commentary/ed052209b.cfm. 

9 Borelli, Deneen, “Rising energy costs triggered by cap-and-trade will harm low-income workers in inner 
cities.” The Baltimore Sun. October 22, 2009. http://www.baltimoresun.eom/healtlvsns- 

2009 1 0220803 mctnewsservbc-capandtrade-minoriti,0,7394488.story. 


281 


^ERICANS 

TAX REFORM 


We are told that these job loses will be offset with new “Green Jobs.” The Institute for Energy 
Research has released a study about the “Green jobs” program in Germany, and found that not 
only are these jobs costly, they are also unsustainable. Government subsidies for the solar industry 
have had a net cost from 2000-2010 of $73 billion (US$) and wind subsidies have cost $28 billion 
(US$). When compared to the US economy, which is five times die si 2 e of Germany’s, we can see 
that it would cost us approximately half a trillio n dollars. The entire wind and solar industry is 
dependent on government handouts including the “Green Jobs” we are told are created from this 
scheme. The government must pay an estimated $240,000 (US$) for ever}' solar employee. As 
soon as the government handouts go away for these jobs, so do the jobs. Not only do these new 
jobs create a new class of people dependent on government welfare, they also kill productive 
jobs. 1 " A Heritage Foundation study has estimated that net job losses, jobs that will be destroyed 
even if we take the government-dependent “Green Jobs” into consideration, will be 1.145 
million. 11 

With a void in U.S. based jobs, and the global economy continuing their demand, these 
manufacturing jobs will go to countries such as China who not putting economic-shackles 
disguised as climate change legislation on their economies. While the U.S. is imposing higher taxes 
and energy costs on its citizens and businesses, China is increasing its production and carbon 
emissions. The result will be the US committing economic suicide while having no proven effect 
on the climate. 

As the United States considers economic destruction and China continues to prosper, what will 
we gain for all of our sacrifice - increased job loss, higher energy costs and an increased burden 
on already strained American families? Climatologists estimate that the cap and trade energy tax 
this Committee will soon consider will at best lower the world-wide temperature by hundredths of 
a degree by 2050 and no more than two-tenths of a degree by die end of die century. 1 ' 

On top of not reducing the temperature, it also won’t teduce our usage or dependency on fossil 
fuels. In 2015, the US is expected to consume 127 billion gallons of gasoline. As a result of cap 
and trade, by 2050 we would consume 100 billion gallons of gasoline. In 2015, however, we will 
use 78 billion gallons of diesel fuel and 31 billion gallons of jet fuel. In 2050, we will use 118 
billion gallons of diesel and 48 billion gallons of jet fuel. While gasoline consumption is expected 
to slighdy decrease, diesel consumption will increase by 30 billion gallons, and jet fuel 
consumption would increase by 17 billion gallons. 13 A recent Environmental Protection Agency 
(EPA) analysis of the Senate Kerry-Boxer draft concluded that “average household consumption 
[of energy] would be reduced by less that 1% in all years.” 14 


10 “Strike Three: First Spain, Then Denmark, and Now Germany. . .” Institute for Energy Research. 
October 19, 2009. http://www.instituteforenergyresearch.org/geTmany/Germany_Study_- 
_Fact_Sheet_(Final_Version).pdf. 

11 Lieberman, Ben. “Green Job Subsidies Will Destroy Far More Jobs Than They Create.” The Heritage 
Foundation. October 2, 2009. http://www.heritage.org/press/commentary/edl00209c.cftn. 

12 Franc, Michael, “Cap and Trade vs. the American Dream: The House’s bill is an economic disaster that 
keeps getting worse.” The Heritage Foundation. May 22, 2009. 

http://w w w. heritage.org/Press/Commentary/ed052209b .eftn. 

13 Hutchinson, Kay Bailey and Bond, Kit, “Democrats' hidden gas tax: Extra $1 per gallon at the pump 
will mean all pain, no gain.” The Washington Times. October 21, 2009. 

http://www.washingtontimes.corn/news/2009/oct/21 /dernocrats-hidden-gas-tax/?feat=homecormnentary 

14 “Boxer Releases Chairman’s Mark of Clean Energy Jobs and American Power Act.” U.S. Senate 
Committee on Environment and Public Works. October 23, 2009. 

http://epw.senate.gov/public/index.dfn?FuseAction=Majority.PressReleases&ContentRecord_id= ; 8469lb 
8e-802a-23 ad-4728-e60dc8d50fea. 


282 


fn 



I agree with the New York Times reporter John M. Broder who wrote, “Cap and trade. . . is almost 
perfectly designed for the buying and selling of political support through the granting of valuable 
emissions permits to favor specific industries and even specific Congressional districts.”' 5 

In conclusion, what is the real purpose of this legislation? It will not create jobs; in fact it will 
destroy jobs and cripple the economy. It will also not help the environment or reduce our 
dependency on foreign oil. It will raise taxes and energy costs on every American family and force 
more jobs to our economic competitors. We believe in an “all of the above” energy approach that 
incorporates a diverse blend of energy sources without raising taxes and/or increasing the 
regulatory burden on businesses and without growing the size and scope of the federal 
government. Thank you. 


15 Broder, John M. “From a Theory to a Consensus on Emissions.” The New York Times. May 16, 2009. 
http;//www.nytimes.com/2009/05/1 7/us/politics/l 7cap.html. 


283 


Testimony in Support of Renewable Bio-gas Market Development to 
Reduce Greenhouse Gas Emissions and Create New Green Jobs 

To the Senate Environment and Public Works Committee 

Submitted by Gas Technology Institute 

10 / 27/09 

GTI would like to thank the Chairman, ranking member and the Committee for this opportunity 
to provide scientific and other information regarding the benefits of renewable bio-gas. GTI is a 
non-profit research and development (R&D) organization focused on increasing energy supply, 
enhancing the reliability and safety of energy delivery; and ensuring energy is used in the most 
efficient and environmentally responsible manner. 

We have been developing energy-related technologies for over 60 years. Some notable GTI 
innovations you may be familiar with are the phosphoric acid fuel cell and the high efficiency 
natural gas furnace, GTI is also a leader in the development of unconventional natural gas 
resources, including shale, tight sands, and coal bed methane, which now account for over 40 
percent of all domestic natural gas supply. 

In addition to research related to natural gas, one third of the organization's R&D portfolio is 
focused on renewable energy, in technologies such as biomass gasification and pyrolysis for 
liquid fuels production; anaerobic digestion for biogas and renewable power; and hybrid solar 
thermal/natural gas equipment for residential and commercial markets. GTI is active in the 
development and deployment of technologies suitable for the production and clean-up of 
renewable bio-gas. 

Currently, elected officials, business representatives, energy and environmental groups and 
many others are discussing options to reduce greenhouse gas emissions (GHG's). It is seen by 
many as the primary means to address climate change, which as an international issue has 
produced a variety of approaches and many different international, national, regional and local 
designs to reduce GHG's. 

In the US, one primary approach has been the development of a renewable liquid 
transportation fuels and renewable electricity market. Incentivizing these renewable markets, 
especially in the case of liquid transportation fuels, has also been a means to increased national 
energy security. 

One new emerging conversation is how do we bring renewables into the 23% of our nation's 
energy use which is represented by natural gas? The nation has invested hundreds of billions of 
dollars to deploy our pipeline transportation system which is extremely efficient at delivering 



284 


natural gas from the "wellhead to the burner tip". Approximately, 91% of the primary energy is 
delivered to the end-user. From "source to site", there is no other fuel that is delivered with 
anything close to that type of efficiency as a fungible, useable energy product. 

Renewable bio-gas(produced from renewable bio-mass, livestock manure and landfill gas) can 
be upgraded to be interchangeable with natural gas and purchased like other natural gas 
resources for energy consumption by consumers that can be used in transportation, industry or 
in homes and businesses. Because both the production and delivery of renewable bio-gas are 
very efficient, when compared to renewable liquid bio-fuels and electricity made from 
renewable bio-mass; renewable bio-gas is an excellent choice to incentivlze. This production 
and delivery efficiency means less of the original renewable feedstock will be needed to provide 
an equal amount of useable energy to a consumer, when compared to other renewable 
options. 

Growth in the production and use of renewable bio-gas can impact almost all end-use sectors 
and provide a fuel that can reduce GHG emissions in transportation, industry, residential and 
commercial applications as well as electricity production. Renewable bio-gas can also easily be 
stored underground, like natural gas for future use, which makes it different then almost every 
other renewable energy option. 

CLIMATE CHANGE LEGISLATIVE LANGUAGE 

The Climate change legislation that has passed the US House of Representatives, however, 
compels a Natural Gas local distribution company (LDC), which is regulated under the bill, to 
hold allowances for any gaseous fuel within in its delivery system co-mingled with natural gas; 
even if produced from renewable resources. If this specific language becomes law, it will 
diminish market pull for the renewable bio-gas product and creates a disincentive for natural 
gas LDC's to accept the fuel into their systems. This in turn will dramatically reduce the 
opportunity for most consumer sectors to use the fuel because only projects where bio-gas 
production and it use are co-located will be viable under climate change legislation. This is not 
as large an opportunity to reduce GHG emissions compared to every natural gas meter to 
becoming a "renewable bio-gas spigot" for a variety of consumers that rely on natural gas. 

On top of the following page are the suggested language changes that will help recognize the 
GHG reduction value of renewable bio-gas. The suggested changes are in red bold. 

Changes to ACES 2009 to Exclude Renewable Bio-gas 

The legislative language should be changed in two instances so that the emissions resulting 
from the combustion of renewable bio-gas by the customers of natural gas local distribution 
utilities do not require an emissions allowance: 



285 


ACES S311 (Enrolled House Bill page 738) 

§722(b)(8) NATURAL GAS LOCAL DISTRIBUTION COMPANIES.— For a covered entity 
described in section 700(1 3)(J), 1 emission allowance for each ton of carbon dioxide equivalent 
of greenhouse gas that would be emitted from the combustion of the natural gas, and any other 
gas meeting the specifications for commingling with natural gas for purposes of delivery (with 
the exception of gas derived from renewable biomass, landfills, or wastewater treatment 
sludge), that such entity delivered during the previous calendar year to customers that are not 
covered entities, assuming no capture and sequestration of that greenhouse gas. 


ACES §312 (Enrolled House Bill page 851 1 

Clean Air Act §700(6)(c) For a natural gas local distribution company described in paragraph 
(13)(J), greenhouse gases that would be emitted from the combustion of the natural gas, and any 
other gas meeting the specifications for commingling with natural gas for purposes of delivery 
(w ith the exception of gas derived from renewable biomass, landfills, or w astewater 
treatment sludge), that such entity delivered during the previous calendar year to customers that 
are not covered entities, assuming no capture and sequestration of that greenhouse gas. 

With the changes above, the opportunity for a robust renewable bio-gas market to develop will 
be greatly increased and all consumers of natural gas can look forward to the potential of a 
renewable option being available in the near future. 

RENEWABLE BIO-GAS TAX INCENTIVES 

United States policy to incentivize the production and use of renewable liquid transportation 
fuels and renewable electricity is well documented throughout both State and Federal law. 
Currently, however, no incentive exists for the production of renewable bio-gas which can 
reach a large base of consumers as discussed earlier and can provide dramatic GHG emission 
reductions. 

The 3 exhibits that follow provide information regarding current opportunities that exist in the 
Congress to incentivize the production of renewable bio-gas, the potential for GHG emission 
reductions and benefits to the US economy and the environment. Also provided is a letter 
outlining the support of almost 80 companies for the passage of renewable bio-gas production 
incentives. 

Thank you for this opportunity to provide testimony to the Committee. 



286 


EXHIBIT 1 

Renewable Bio-gas PTC - Talking Points 

The Renewable Biogas PTC proposed by Senator Nelson (S-306) and Congressman Higgins (HR 1158) 
addresses environmental issues, national energy security and the economy by creating jobs and 
providing new income streams for livestock producers, food processors, bio-gas project developers, and 
agri-businesses. This tax credit seeks to provide the necessary incentives to turn wastes into energy: 
from livestock manure, and cellulosic feed-stocks to landfill and sewage wastes. 


• The job creation potential of renewable bio-gas gas projects is significant. It has been 
estimated 1 2 that 550-860 jobs per billion cubic feet (Bcf) of useful renewable bio-gas can be 
created. 

• Given a market potential of 1 quadrillion Btu's, or about 1,000 Bcf, the near term job creation 
potential would be in the range of 550,000-860,000 new jobs. Longer term an additional 1 
quadrillion Btu’s could be produced adding an additional 550,000 to 860,000 jobs to the 
economy. 

• This PTC can lead to 47.9 million metric tons (MMTs) annually of C02 reductions from 
animal waste, 57.5 MMTs annually from cellulosic materials and 21.5 MMTs annually from 
landfills. This total of 127 MMT's annually is the equivalent of taking 25.4 million cars off the 
road. 

• The California Air Resources Board (CARB), in a 2009 report, has determined that bio- 
methane is the lowest carbon transportation fuel available today. 

• Every state in the Union has the resources to participate in the production of renewable gas 
with the potential to create new green jobs in every state. 

• Bio-gas from renewable sources including animal manure, forest residues and agricultural 
wastes can be produced at efficiencies ranging from 60~70% 1 2 3 , thus using our renewable 
resources in a very responsible and efficient manner. 

• All of the technology components to produce renewable bio-gas from this variety of sources 
exist today. 

• Renewable bio-gas production in digesters provides the agricultural sector additional 
environmental benefits by improving waste management and nutrient control and 
dramatically reducing carbon emissions through the control of methane by placing manure 
in enclosed vessels instead of open lagoons. 

• Another benefit of generating renewable bio-gas is that it can be upgraded and delivered to 
customers via an existing U.S. pipeline infrastructure providing a renewable option to 25% of 
our energy market which has few renewable options today. 

• Renewable bio-gas upgraded and delivered through the pipeline system can provide a 
renewable option for heating homes and businesses throughout the country and for many 
heavy industries in urban areas as well as in transportation and for electricity production 


1 Socioeconomic Drivers in implementing Bio-Energy Projects. Domas et at, Science Direct,26 (2005) 97-106 

2 http://peakenergy.blogspot.com/2008/03/banana-mettiane-powered-cars-pig-poo.htmi 

3 http://www.sgc.se/Rapporter/resources/seminar_screen.pdf. p. 305. 



287 


thus reducing carbon emissions - while creating new rural green jobs to produce renewable 
bio-gas. 


While wind, solar, biomass and geothermal remain absolutely vital, we are missing a substantial 
opportunity to turn wastes and waste problems into energy and energy solutions that help the 
environment and the economy. Through the production of renewable bio-gas, and upgrading to 
pipeline quality, we can provide a renewable option for natural gas, which represents 25% of our U.S. 
energy use. 



288 


EXHIBIT 2 

Renewable Bio-gas Carbon Emissions Reductions Benefits 

There are several broad categories of renewable gas including: (1) biomass derived; (2) landfill 
gas; and (3) animal (livestock) waste derived. Each of these renewable gases can provide for 
substantial reduction in carbon emissions. However a new federal production tax credit (PTC) 
for renewable gas is needed to make many such projects economically viable particularly during 
this time of low energy prices for competing fossil fuels like natural gas. 

Estimated COz reduction benefits achievable, based on proposed bio-gas PTCs in the Nelson 
and Higgins' bills are conservatively 127 million metric tons annually. This is the equivalent of 
taking 25.4 million cars off the road. 

Below is an analysis of the levels of C0 2 reductions for the production and use of each type of 
renewable derived bio-gas described above, followed by a synopsis of the potential total 
national C0 2 reduction benefits. 

Animal Waste 

Animal waste includes the liquid and solid excretions of virtually any type of livestock, and can 
also include sludge from water treatment facilities. The decomposition of these wastes 
produces methane and other gases. By gathering these wastes and accelerating their 
decomposition in anaerobic digesters, the gases can be contained, and further processed into 
high-methane-content gas. This gas can then be used to supplant other fuels for combustion 
for heat or electricity generation. The productive use of these wastes is a force multiplier in 
reducing GHG emissions. While the product gas does offset the use of natural gas in the 1:1 
ratio described below for landfill gas and biomass gas, the elimination of the methane 
emissions is even more compelling. One ton of methane (CH 4 ) is considered to have the 
radiative forcing effect of 23 tons of C0 2 . One MMBtu of methane weighs 42.2 pounds. 
Multiplying this by 23 gives a C0 2 equivalent (not released) of 970 lbs of C0 2 released for each 
MMBtu of methane emitted to the atmosphere. To this must be added the 117 pounds per 
MMBtu of C0 2 produced when natural gas is combusted. 

Biomass Derived Gas 

Renewable gas can be produced from a variety of biomass sources, including woody biomass 
(i.e,, trees and forestry waste) and crop processing waste (e.g., corn husks/cobs). These input 
materials are all carbon-based, and through the normal cycle of death and decomposition, or 
destruction through combustion, the carbon is ultimately released into the atmosphere. 



289 


uncontrolled and in gaseous form. By capturing and converting these wastes to high quality 
gas, the carbon normally released by decomposition or open burning is eliminated. The result 
is that instead of emitting CO 2 from the non-productive decomposition of the biomass, 
gasification is done in a controlled and contained fashion. The useful gas produced then offsets 
natural gas on a 1:1 ratio. Thus for every MMBtu of biomass gas produced, one MMBtu of 
natural gas is not combusted. 

Landfill Gas 

Landfills of significant size are required by New Source Performance Standards (NSPS) to install 
well fields to collect gases from decomposition; typically methane, CO 2 , and other minor 
constituents. This use supplants the natural gas that would otherwise be used. As an example, 
for each MMBTU of methane that is flared, 117 pounds of C0 2 are emitted. At the same time 
for each MMBTU of natural gas combusted by a consumer, a similar 117 lbs of C0 2 emitted. By 
cleaning up the landfill gas and using it to supplant natural gas, the 117 lbs of C0 2 that was 
emitting twice, is now only emitted once. 

Benefits of Renewable Gas 

The U.S. EPA estimates that biogas levels of 96 billion cubic feet (Bcf) are technically feasible 
using anaerobic digestion at 7,000 of our nation's dairy and swine farms. (There are over 
65,000 dairy farms and another 65,000 pig and hog farms in the U.S.) With a PTC in place, all of 
these 7,000 farms, over time, can be converted to renewable gas production economically. 
Using a global warming potential for methane of 23 times CO 2 , this equates to 42.6 million 
metric tons of C0 2 reductions per year. Additionally, another 96 Bcf of methane can be 
displaced with combustion of renewable natural gas in place of natural gas for another 5.3 
million metric tons per year for a total of 47.9 million metric tons annually of C0 2 reductions. 
Additionally, because the EPA analysis doesn't account for a tax credit or the prospect of 
connecting smaller farms with a pipeline gathering system, we believe conservatively a tax 
credit could create thousands of more farms becoming economically and technically feasible to 
produce renewable gas leading to the potential for a doubling of aforementioned C0 2 
reductions. 

Thermochemical gasification, in addition to the anaerobic digestion just discussed, opens up 
the resource base to include cellulosic materials like forest wastes, woody bio-mass and crop 
residues. The U.S. Energy Information Administration (EIA) in their Renewable Portfolio 
Standard (RPS) analysis estimates that 2.2 quads of renewable gas could be produced from 
biomass-related RPS facilities (not including the above anaerobic digestion). If we assume a 
50% penetration for biogas to renewable natural gas through the PTC, or about 1.1 quads per 



290 


year of renewable methane produced and combusted, then another 57.5 million metric tons 
per year of CO 2 can be avoided. 

How many bio-mass gasification plants are required? If there are 137 2,000-ton-per-day 
facilities, that will produce 1.1 quads of renewable gas per year. Additionally these gasification 
facilities, due to the need for separation and capture of C0 2 to produce renewable gas, will be 
carbon sequestration ready; so that in the future C0 2 can be placed in a pipeline and sent to a 
sequestration site or used to support other C0 2 mitigation options like algae production. 

There are about 3,000 landfills in the U.S and very few of these produce high BTU renewable 
biogas because of the high costs of doing so. The EPA's Landfill Methane Outreach Program 
(LMOP) estimates that 520 of these have the potential to produce biogas. The PTC will enable 
these to be developed to produce renewable gas. The potential for these facilities is 1.08 
Bcf/day, or 390 Bcf of renewable gas per year. This produces C0 2 savings of 21.5 million metric 
tons per year from LFC sites. 

Thus, a PTC can create a total C0 2 savings of 127 million metric tons per year. 


HYPERLINK ”http://www. epa.gov/agstar/pdf/biogas%20recovery%20systems_screenres. pdf' 
httD://www.eDa.gov/agstar/pdf/biogas%20recoverv%20svstems screenres.pdf 
HYPERLINK "http://www.epa.gov/lmop/res/calc.htm" http://www.epa.gov/lmop/res/calc.htm 




291 


EXHIBIT 3 

Renewable Bio-gas Production Tax Incentive Support Letter 

October 6, 2009 


The Honorable Max Baucus 
Chairman 

Finance Committee 
U.S. Senate 

Washington, DC 20510 

The Honorable Charles B. Rangel 
Chairman 

Ways and Means Committee 
U.S. House of Representatives 
Washington, DC 20515 


The Honorable Charles E. Grassley 
Ranking Member 
Finance Committee 
U.S. Senate 

Washington, DC 20510 

The Honorable Dave Camp 
Ranking Member 
Ways and Means Committee 
U.S. House of Representatives 
Washington, DC 20515 


The following companies and organizations recommend that Congress develop and pass 
legislation providing a $4.27 per MMBTU tax credit for the production of renewable gas. The Biogas 
Production Incentive Act introduced by Representative Higgins in the previous Congress (D-NY), with 
original co-sponsors Rahm Emanuel (D-IL) and Devin Nunes (R-CA) would have established such a credit. 
Representative Higgins has re-introduced his legislation this session along with Senator Nelson (D-NE). 
We believe this tax incentive would lead to new green jobs and rural economic development. 


The U.S. Congress has wisely supported the expanded use of domestic renewable resources 
through a variety of tax incentives and other programs. Up to this point, Congress has focused primarily 
on measures that support the production of renewable liquid transportation fuels or electricity. In the 
U.S., however, natural gas represents 27 percent of the energy consumed. 

Natural gas is the fuel of choice to provide residential and commercial heat for space and hot 
water in most applications and is used to produce steam in a variety of commercial and industrial 
applications. Natural gas is also the fuel that provides the energy to manufacture many industrial 
products including aluminum, steel, glass, chemicals, fertilizer, and ethanol. Compressed natural gas can 
also provide the fuel for light, medium and heavy-duty vehicles. 

incentivizing the production of renewable gas (RG) from sources that include animal manure, 
landfills, renewable biomass and agricultural wastes will support expanding the role of renewables into 
this existing energy sector, where little opportunity exists today. It will also create another business 
investment prospect for renewable project developers and the potential to expand rural economies 



292 


while supporting existing industrial jobs and dramatically reducing carbon emissions. 
Please consider the following: 


o RG is a versatile form of bio-energy. It can be used directly at the site of production, or 
placed in the pipeline to support a variety of residential, commercial, industrial or 
transportation applications. 

o RG produced from renewable sources including animal manure, landfills, renewable biomass 
and agricultural wastes can be produced at high efficiencies ranging from 60-70 percent. 
Additionally, all of the technology components to produce renewable gas from this variety 
of sources exist today. 

o RG can be delivered to customers via the existing U.S. pipeline infrastructure. 

o RG can provide a renewable option for many heavy industries, which could save existing 
industrial jobs in a carbon constrained economy - while creating new rural green jobs to 
produce RG. 

o RG production in digesters provides the agricultural sector additional environmental 
benefits by improving waste management and nutrient control. 


The following companies and organizations urge your support of a $4.27 per MMBTU tax credit 
for the production of renewable gas. We believe this is a fiscally responsible proposal that will spur new 
gas production, create green jobs, expand the rural economy, increase energy independence and reduce 
greenhouse gas emissions. 

If you have questions regarding this request or would like further information please contact Lloyd 
Ritter at (202) 215-5512 or lritter@greencapitol.net. 

Thank you. 

Companies and organizations in support are listed below. 


As of 10/06/2009 


AGL Resources 
Atlanta, GA 

American Biogas Company 
Madisonville, KY 
American Gas Association 
Washington, DC 

American Iron and Steel Institute 
Washington, DC 


Cayuga Renewable Energy LLC 
Union 5prings, NY 

Central Hudson Enterprises Corporation 
Poughkeepsie, NY 
Chattanooga Gas Company 
Chattanooga, TN 

Consolidated Edison Company of New York, Inc. 
New York, NY 



293 


American Public Gas Association 

Washington, DC 

Andigen, LLC 

Logan, UT 

ASERTTI 

Washington, DC 
Atlanta Gas Light 
Atlanta, GA 
Atmos Energy 
Dallas, TX 

Beacon Generating 
McLean, VA 
BioEnergy Solutions 
Bakersfield, CA 
Bison Renewable Energy 
Sioux Falls, SD 

Business Council for Sustainable Energy 

Washington, DC 

Cayuga Marketing LLC 

Union Springs, NY 

Florida City Gas 

Rockledge, FL 

Gas Technology Institute 

Des Plaines, IL 

Genex Farm Systems 

Melrose, MN 

GHD, Inc. 

Chilton, Wl 
Green Capital 
Sioux Falls, SD 
Harvest Power, Inc. 

Waltham, MA 

tntermountain Gas Company 
Boise, ID 
Linde, Inc. 

Murray Hill, NJ 

Liquid Environmental Solutions Corporation 
San Diego, CA 
Mack Trucks, Inc. 

Allentown, PA 
Montauk Energy Capital 
Pittsburgh, PA 

National Fuel Gas Distribution Corporation 
Williamsvilie, NY 
National Grid 
Waltham, MA 


Council of Northeast Dairy Farmer Cooperatives 

Alexandria, VA 

Cygnus Energy 

Skaneateles, NY 

Dairy Business Association 

Oneida, Wl 

DTE Energy 

Detroit, Ml 

Elizabethtown Gas Company 
Berkeley Heights, NJ 
Elkton Gas Company 
Elkton, MD 

Energy Systems Group 
Newburgh, IN 

Environmental Intelligence, Inc. 

St. Paul, MN 

Environmental Power Corporation 
Tarrytown, NY 
Exelon Corporation 
Washington, DC 
Republic Services, Inc. 

Phoenix, AZ 
River Birch Inc. 

New Orleans, LA 
Sanimax 
DeForest, Wl 
Schmack BioEnergy 
Cleveland, OH 
SEMPRA Energy 
San Diego, CA 

Sequent Energy Management 
Houston, TX 

Southwaste Services, Inc. 

Houston, TX 

Spruce Haven Farm and Research Center 
Union Springs, NY 
StormFisher BioGas 
Hartford, CT 

Sustainable Conservation 
San Francisco, CA 
TECO-Peoples Gas 
Tampa, FL 

Terracastus Technologies 
New York, NY 
Think-21 
New York, NY 



294 


National Milk Producers Federation 

Arlington, VA 

New Jersey Resources 

Wall, NJ 

NGV America 

Washington, DC 

NWNatural 

Portland, OR 

Organix, Inc. 

Walla Walla, WA 

Palmer Capital 
Cohasset, MA 
PG&E Corporation 
San Francisco, CA 

Phase 3 Renewables 
Cincinnati, OH 

RealEnergy, LLC 
Yountville, CA 

Recycled Energy Development 
Westmont, IL 


United Liquid Waste Recycling, Inc, 

Clyman, Wl 

Universal Entech, LLC 

Phoenix, AZ 

Virginia Natural Gas 

Norfolk, VA 

Volvo Group North America 
Washington, DC 

Waste Energy Solutions, LLC 
Pittsburgh, PA 

Waste Management 
Houston, TX 

Western United Dairymen 
Modesto, CA 

Ze-gen 
Boston, MA 



295 



How the economic stimulus program and new legislation 
can boost U.S. economic growth and employment 


Robert Pollin, James Heintz, and Heidi Garrett-Peitier June 2009 

Department of Economics and Political Economy Research Institute (PER!) 
University of Massachusetts, Amherst 




296 



Center for American Progress 



The Economic Benefits of 
Investing in Clean Energy 

How the economic stimulus program and new legislation 
can boost U.S. economic growth and employment 


Robert Pollin, James Heintz, and Heidi Garrett-Peitier 

Department of Economics and Political Economy Research Institute (PER!) 
University of Massachusetts, Amherst 


Bracken Hendricks and Michael Ettlinger 

Project Managers, Center for American Progress 


June 2009 



297 


Contents 


1 Introduction and summary 

5 Understanding the economic stimulus program and new 
dean-energy legislation 

14 Creating $150 billion a year in dean-energy investments 
21 Methodologies for estimating employment and GDP growth 
27 Job creation through dean-energy investments 
40 Forecasting the impact of a carbon cap on economic growth 
46 Conclusion 

48 Appendix 1: Technical methods 

57 Appendix 2: The employment impact of clean-energy 
investments across individual states 

61 References 

63 Endnotes 

65 About the authors and acknowledgments 



298 


ntroduction and summary 


Hie United States in the 21st century faces an enormous challenge — successfully manag- 
ing the transformation from a predominantly carbon-intensive economy to becoming a 
predominantly dean energy-based economy. The reality of global climate change due to 
rising carbon emissions makes it imperative that the U.S. economy dramatically cut its 
consumption of traditional fossil fuels, the primary source of carbon dioxide (CO.,) deliv- 
ered into our atmosphere by human activity. Rising levels of C0 2 in the atmosphere is in 
turn the primary cause of global warming. 

This economic transformation will engage a huge range of people and activities. But there 
arc only three interrelated objectives that will define the entire enterprise: 

• Dramatically increasing energy efficiency. 

• Dramatically lowering the cost of supplying energy from such renewable sources of 
energy as solar, wind and biomass. 

• Mandating limits and then establishing a price on pollution from the burning of oil, coal, 
and natural gas. 

It is crucial for economic policymakers and the American people to nnderstand the likely 
effects of these three overarching objectives as much as possible. Specifically, we need to 
gauge our success in curbing C0 2 emissions alongside the broader effects on the U.S. econ- 
omy, particularly on employment opportunities, economic growth and peoples incomes. 

This paper examines these broader economic considerations — jobs, incomes, and eco- 
nomic growth — through the lens of two government initiatives this year by the Obama 
administration and Congress. The first is the set of clean-energy provisions incorporated 
within the American Recovery and Reinvestment Act, initiated by the Obama administra- 
tion and passed into law by Congress in February. The second is the proposed American 
Clean Energy and Security Act, co-sponsored by Rep. Henry Waxman (D-CA) and 
Rep. Edward Markey (D-MA), which is now before Congress. 

Our analysis in this paper shows that these two measures operating together can generate 
roughly $ ISO billion per year in new clean-energy investments in the United States over 
the next decade. This estimated $ 1 50 billion in new spending annually includes govern- 
ment funding but is notably dominated by private-sector investments. We estimate this 


1 Political Economy Research institute • Center for American Progress | The Economic Benefits of investing in Clean Energy 



299 


sustained expansion in clean-energy investments triggered by the economic stimulus 
program and the forthcoming American Clean Energy and Security Act can generate a 
net increase ofabout 1,7 million jobs. This expansion in job opportunities can continue 
as long as the economy maintains a commitment to clean-energy investments in the $ 1 50 
billion per year range. If clean-energy investments expand still faster, overall job creation 
will increase correspondingly. 

These job gains would be enough — on their own — to reduce the unemployment rate in 
today’s economy by about one full percentage point, to 8.4 percent from current 9.4-percent 
levels — even after taking into full account the inevitable job losses in conventional fossil fuel 
sectors of the U.S. economy as they contract. Our detailed analysis, based on robust eco- 
nomic-modeling methodologies that are explained in detail in the paper and in Appendix I, 
beginning on page 48, calculates that roughly 2.5 million new jobs will be created overall 
by spending $150 billion on clean-energy investments, while close to 800,000 jobs would 
be lost if conventional fossil fuel spending were to decline by an equivalent amount. It is 
not likely that all $ 150 billion in new clean-energy investment spending would come at the 
expense of reductions in the fossil fuel industry. However, we present this scenario to estab- 
lish a high-end estimate for reductions in conventional fossil fuel spending, and the net gains 
in employment that will still result through spending $150 billion per year on clean-energy 
investments. In appendix 2, we also present these figures on net job creation broken down 
on a state-by-state basis for all 50 states and the District of Columbia. 

The stimulus program enacted in February to help the economy recover from a deep 
recession already in its 1 8th month includes a range of measures to begin building a clean- 
energy economy. These measures indude: 

• $24.4 billion in federal government spending to promote energy efficiency. 

• $23 billion for transportation investments. 

• $25.3 billion for renewable energy. 

Some of this funding will be in 2010, but a significant amount will also spark new eco- 
nomic activity between 2011 and 2014. 

Congress still must pass the American Clean Energy and Security Act, or ACESA, and the 
president must still sign it. But the legislation contains three broad categories of initiatives 
that are unlikely to change in substance: 

• Regulations aimed at promoting clean energy. 

• A mandated cap on carbon emissions that will be phased in through 2050. 

• Measures designed to assist businesses, communities and individuals successfully man- 
age the transition to a clean-energy economy. 


2 Political Economy Research Institute • Center for American Progress | Thft ik'cnomif; Bwieftts nHnw&lng sn Cfcan knergy 



300 


The general thrust of this forthcoming legislation and the dean-energy provisions within 
the economic stimulus program is to promote energy effidency and renewable energy. Yet 
as an economic stimulus program, ARRA operates through direct government spend- 
ing and financial incentives to promote private investments in clean energy. In contrast, 
ACESA will boost clean-energy investments mostly by private businesses, investors and 
households through new regulations that encourage the clean and efficient use of energy 
and discourage the use of high-carbon fuels. Many of the regulatory initiatives proposed 
within the ACESA are not fully fleshed out within the legislation itself. As such, it is more 
difficult to estimate their effects on overall clean-energy investments than is true with the 
spending initiatives advanced by the ARRA. 

In the following pages, this paper first examines the basic clean-energy features of the eco- 
nomic stimulus program and the proposed ACESA. Specifically, we will detail the distinct 
features of both measures and the ways in which they would operate in concert to encour- 
age investments in dean energy and energy efficiency as well as discourage spending on 
conventional high-carbon fuels. 

We will then explain how ARRA and ACESA operating in tandem would create new 
employment opportunities across the United States by spurring SI 50 billion a year 
over the next decade in new clean-energy investments. Understanding how we calcu- 
lated these investment levels over 10 years requires an understanding of the different 
economic models available to analysts and why we chose a simple but reliable method 
for estimating employment effects based on data generated by the U.S. Commerce 
Department’s industrial census. We explain the reasons for our analytical decisions on 
pages 15-20, beginning with how we estimated the effects on jobs of shifting spending 
in the U.S. economy away from high-carbon fuels and toward clean-energy investments. 
We will show why our simple approach offers a robust framework for understanding 
how a shift in spending from conventional fossil fuels to clean energy generates a net 
expansion of employment that will be sustained as long as the U.S. economy maintains 
its commitment to clean-energy investments. 

We then present our detailed employment estimates. Our key finding is that clean-energy 
investments generate roughly three times more jobs than an equivalent amount of money 
spent on carbon-based fuels. We consider some of the implications of this result, including 
how a large-scale shift from conventional fossil fuels to dean-energy investments — on the 
order of $150 billion a year — would affect conditions in the U.S. labor market. 

Our paper then turns to the various economic models used to estimate the impact of a 
carbon cap on the long-run growth trajectory of the U.S. economy. Our key finding: All 
of the models, without exception, forecast that a carbon cap, such as that proposed in 
ACESA, would have, at worst, a minimally negative impact on the U.S. economy’s long- 
term growth path. Moreover, these models generate this basic finding without considering 
some of the major ways in which clean-energy policies can stimulate economic growth. 


3 Political Economy Research Institute • Center for American Progress | The Economic 3e nefits of Investing in Clean Energy 



301 


These include the expansion of employment opportunities itself, a reduction in the trade 
deficit, promoting technological improvements and thus falling prices in renewable energy 
sources, and reducing the negative impacts on economic activity of greenhouse gas emis- 
sions and unmitigated global warming. 

To be sure, any economic modeling effort that estimates changes in employment growth, 
economic growth, and income growth will result in forecasts that are problematic by nature. 
We make this clear in our paper wherever we rely on our own economic models and those 
employed by others. But we also take pains to examine the relative strengths and weaknesses 
of all the modeling approaches — including our own. This enables us to cross check our own 
conclusions with those of other researchers to reach the most reliable possible understand- 
ing of the overall impact of advancinga dean-energy agenda within the U.S. economy. 


A Political Economy Research Institute • Center for American Progress ] i f -.c:vri: • of invest o<; :■ Wo Energy 



302 


Understanding the economic 
stimulus program and new 
clean-energy legislation 


The dean-energy components of the American Recovery and Reinvestment Act pro- 
grams and the entire American Clean Energy and Security Act now before Congress are 
designed to transition our economy from its reliance on high-carbon fuels to one operat- 
ing more efficiently on clean energy. Understanding the specific features of ARRA and 
ACESA and how they will work in combination allows us to estimate the level of public- 
and private-sector investments in dean energy. As we will demonstrate, the two programs 
together could create $150 billion a year in new investment and 1.7 million net new jobs a 
year — that is, 1 .7 million more jobs each year than would be the case without a $ 1 50 bil- 
lion shift in spending from conventional fossil fuels to clean energy investments. 


The economic stimulus program 

There are three separate ways to break down the various spending categories on clean 
energy within the $787 billion economic stimulus program that kicked in after the passage 
of ARRA in February this year. The first is according to the specific categories of environ- 
mental spending. The second is the financial mechanism for allocating the federal funds. 
And the third is the amount of additional spending by state and local governments and 
private businesses that are likely to result through the incentives offered under ARRA (see 
Table 1 ). It is crucial to keep these distinctions clear, especially when we later consider the 
impact of ARRA in conjunction with the types of measures proposed in the ACESA. 


Categories of environmental spending 

As Table 1 shows, total federal environmental spending in ARRA amounts to about 
$100 billion, divided into nine categories: renewable energy, energy efficiency, trans- 
portation, the electrical grid, nuclear decontamination, carbon capture-and-storage 
technologies for fossil fuels, basic science, along with general categories '‘other" and 
"government administration.” The four largest areas of federal spending are renewable 
energy, energy efficiency, transportation, and the electrical grid, accounting for about 
$86 billion of the $100 billion total. 


5 Political Economy Research Institute • Center for American Progress | i he Economic Benefits of Investing in Often Energy 



303 


TABLE 1 

Environmental spending through the ARRA 

Billions of dollars 


Type of funding 

Direct public spending 

Grants 

Tax incentives 

Loan guarantees 

Bonds 

Total 

federal spending 

Renewable energy 

$2,5 

$2.3 

$16.0 

$4.0 

$0.6 

$25.3 

Energy efficiency 

72 

14.4 

2.0 

0 

0.8 

24.4 

Transportation 

0.6 

20.1 

2.1 

0 

0.3 

23.0 

Grid 

6.6 

4.4 

0 

2,0 

0 

13.0 

Nuclear decontamination 

6.0 

0 

0 

0 

0 

6.0 

Fossil 


3.4 

0 

0 

0 

3.4 

Science 

1.6 

0 

0 

0 

0 

1,6 

Other 

2.3 

0.7 

0 

0 

0 

3.0 

Government admin 

0.7 S 


0 

0 

0 

0.8 

Total 

$27.6 

$45.3 

$20.0 

$6.0 

$1.7 

$100.5 

Stare 'local government and private investment 

State/iocal government and pri- 
vate spending induced by federal 
funds: os proportion of federal fundi 

0 

Ranges by program 
between 0-3 times 
federal spending 

Up to 2.3 times 
federal spending 

Up to 10 times 
federal spending 

Up to 3 times 
federal spending 

- 

State/iocal government and 
private spending induced by 
federal funds; as dollar amounts 

0 

$68 estimated 
f= l.S times federal 
spending average) 

Up to $46 

Up to $60 

Up to $5.1 

Up to $179.1 

Total, all sources 

$27.6 billion 

Up to $11 33 

Up to $66 

Up to $66 

Up to $6.8 

Up to $280.0 


Source: ARRA; grams gov; irs.gov; vvww.staiewcove'yo'g. wwvrgotgov/recovcry. edoc»e:ac«ssgsK}.gov; epagoviwwvuecoverygiw. cbo.gov; dsireusa.org. 


Financial mechanisms for allocating federal funds 

There are five separate categories; direct public spending, grants, tax incentives, loan 
guarantees, and bonds. Direct public spending programs by the federal government — at 
$27.6 billion — represents only about one-fourth of the total $100 billion in federal spend- 
ing. With the remaining $73 billion in federal spending that will be allocated through 
grants, tax incentives, loan guarantees and bonds, the federal ARRA funds are used as 
incentives to induce still higher levels of environmental investment spending both by state 
and local governments and even more so by private investors. 


Additional spending by state and focal governments and private business 

How much additional clean-encrgy investments will the $73 billion in incentives for state 
and local governments and especially private businesses end up encouraging? Estimating 
this amount of additional spending beyond the $73 billion in incentives is difficult, 


6 Political Economy Research Institute • Center for American Progress j The £«nv>mic 8ene«tj of investing m Clean f w$iy 



304 


because of the very nature of incentives. The federal government obviously does not have 
the power to force anyone to accept the incentives they are offering; nevertheless, it is 
essential to establish at least some broad parameters as to how extensive the non-federal 
environmental spending induced by ARRA is likely to be. 

We therefore present in Table 1 some rough estimates of how much additional funding by 
state and local governments and the private sector is likely to occur because of the $73 bil- 
lion in federal incentives. Our estimates vary due to the nature of the different incentives, 
Among the federal grants on offer, for example, are those that require no matching funds 
from state or local governments or private businesses, such as “transit capital improve- 
ments” and the “state energy program." And then there are those federal grants that do 
require matching investments, such as "concentrating solar power” and “transportation 
electrification.” We assume an average level of matching funds at about 1.5 times the level 
of federal funds allocated for these grants, since this is a midpoint figure for the range of 
matching fund requirements in the various grant programs. 

With the tax incentives, loan guarantees, and bond financing programs, the upward range 
by which federal funds maybe matched by state and local government or private invest- 
ments is more consistently specified within the ARRA legislation. Based on this informa- 
tion, vve estimate that non-federal spending will range between 2.3 times federal spending 
for the various tax incentive measures to 10 times federal spending for the loan guarantees 
and bond financings to help finance investments in renewable energy and smart grid trans- 
mission systems. We explain in detail on page 49 of Appendix 1 how we derive these upper 
end estimates for non-federal spending induced by the ARRA. 

Overall, as Table 1 shows, we estimate that the various grants, loan guarantees, tax incen- 
tives and bond financings could spur up to about $ 1 80 billion in total spending in addition 
to the $ 100 billion in federal spending in clean energy through the economic stimulus 
program. Yet the total level of investments could fall below that $280 billion if the private 
sector does not respond with sufficient enthusiasm to the incentive programs provided by 
ARRA. This could happen depending on the implementation of other clean-energy regula- 
tions and incentives. 

This is the crucial point of convergence of the clean-energy incentives advanced through 
the economic stimulus program and the set of regulations and incentives currently 
included in the American Clean Energy and Security Act before Congress. This combina- 
tion of incentives will create the overall investment environment for dean energy in the 
U.S. economy. But before we detail how this convergence will affect overall investment 
flows from state and local governments and the private sector over the next decade, we 
first must consider the rate at which clean-energy spending through the ARRA is likely to 
be distributed throughout the economy. 


7 Political Economy Research Institute • Center for American Progress | The Economic Scents «f Investing in Clean Energy 



305 


Rate of spending on economic stimulus programs 

About 90 percent of the overall spending under the $787 billion American Recovery and 
Reinvestment Act is designed to occur between 2009 and 2014.' But ARRA's clean-energy 
components are largely designed to encourage private-sector participation, which means 
the rate of spending on clean energy will stretch out over a longer period of time. This 
is the case for several interrelated reasons. It takes longer for a private investor to decide 
to pursue an investment opportunity because of federal government incentives than for 
the federal government to undertake on its own a direct federal spending project. It then 
takes time to obtain financing for such projects and organize the various contracting and 
subcontracting parties involved in the project. Then and only then can the spending begin 
on a private sector clean-energy project operating with federal subsidies. 

The Congressional Budget Office recognized these factors in a recent analysis. CBO devel- 
oped an eight-year time frame for the nearly full disbursement of ARRA-related invest- 
ment funds on renewable energy and energy efficiency— managed by the Department of 
Energy — with the bulk of spending on these projects occurring between 2010 and 2014. 
Table 2 shows the rate at which the CBO is assuming these ARRA funds will be spent. 

The CBO assumes that 35 percent of total funding will be spent as of 20 II , 90 percent by 
2014, and 96 percent by 2015. We therefore assume that the rate of spending for the other 
clean-energy investment components of ARRA will proceed at roughly the same rate as 
these renewable-energy and energy-efficiency projects within the Department of Energy 
budget. We can conclude that all of the dean-energy components of the economic stimu- 
lus program will operate on a large scale for about five years, from 2010 to 2014. 2 


TABLE 2 

Congressional Budget Office estimated rate of ARRA spending on renewable energy and energy efficiency 


Year of ARRA 
spending 

Percentage of total direct 
federal spending in given year 

Cumulative percentage of direct 
federal spending as of given year 

2009 

2.6% 

2.6% 

2010 

12.2% 

14.8% 

(2009-10 spending) 

2011 

19.9% 

34,7% 

(2009-1 1 spending) 

2012 

22.1% 

56.8% 

(2009-12 spending) 

2013 

17.6% 

74.4% 

(2009-13 spending) 

2014 

15.1% 

90.0% 

(2009-14 spending) 

201S 

6.2% 

95.746 

(2009-15 spending) 

2016 

1.6% 

97.3% 

(2009-16 spending'; 


vxri.? :<v Buc-Wi Office. tSMnaredCoMOlrne Amerce Retow«vjfv: Vtovestmen Aod JOW tswroieoto: - V* neCo-fw c< : k O ■r'. 1 

« x ciwao*'f!rKJocv99»«/cloc9W/Niconteef<en<H 


in ftean finer r.;y 


8 Political Economy Research Institute * Center for American Progress | ■ he ;;< 


Trie Benefit? of (m'SVt’f 



306 


if we then also assume that nearly $280 billion in total is spent by the public and private 
sectors over this five-year period, this would amount to an average level of clean-energy 
investments tied to ARRA of about $56 billion per year over five years. Nevertheless, the 
rate at which the federal money tied to incentive-based programs within the ARRA — the 
grants, loan guarantees, tax incentives and bond programs — are actually spent will depend 
on the broader set of regulations and incentives operating within the economy. As such, 
the policies proposed through the ACESA will play a centra] role in strengthening the 
clean-energy incentives introduced through the ARRA. 


The American Clean Energy and Security Act of 2009 

Thecurrent draft ofACESAsets outa variety of standards, regulations, and restrictions 
governing energy efficiency and carbon emissions. As of June 18, 2009 the bill was still 
under debate in Congress and will undergo further revisions before it reaches the presi- 
dent for his probable signature. But the basic framework and parameters of the measure 
will likely remain as presented in the draft legislation as it currently stands. 

ACESA is primarily a piece of regulatory legislation, not a spending bill. Upon implemen- 
tation, the law will influence the allocation ofprivate resources and the direction oftech- 
nological change, and thereby alter the ways in which energy is produced and consumed. 
This will happen most directly through the introduction of a carbon cap-and-trade pro- 
gram that will put a price on carbon emissions for the first time and then allow companies 
to trade carbon-emission credits among themselves as the cap on emissions rises. 

This differs significantly from the clean-cnergy investment components of the economic 
stimulus program that, as we have seen, are direct spending measures or subsidies to 
promote private investment in these areas. Yet the underlying aim of the ACESA is also to 
encourage new investments in dean-energy activities and correspondingly discourage reli- 
ance on high-carbon fuels. Specifically, the new carbon cap-and-trade program will explic- 
itly limit conventional fossil fuel production and consumption and encourage investors to 
meet market demaud for energy by providing consumers with clean-energy alternatives. 

ACESA boasts one section that deals directly with reducing carbon emissions through 
a cap-and-trade program. Other aspects of the bill would: increase energy efficiency; 
diversify sources of energy through the development of clean-energy alternatives; reduce 
dependency on imported high-carbon fuels; and modernize the energy transmission and 
distribntion system through the adoption of "smart grid” technologies. Together, ACESA 
would promote clean-energy and energy efficiency; reduce our reliance on high-carbon 
fuels, and support companies, individuals and communities through the transition to a 
clean-energy economy. 


9 Poli tical Economy Research Institute • Center for American Progress | The Economic Benefits of Investing irt Clean Energy 



307 


Besides the cap-and-trade program, ACESA includes regulations governing a new 
national standard for electricity generation through renewable energy sources and a 
set of broad guidelines by which new standards and regulations would be determined 
through future legislative and regulatory initiatives. These major additional provisions 
in ACESA include: 

• A carbon capture-and-storage program. The bill calls for a study to assess the barriers 
to the broad deployment of carbon capture-and-storage technologies alongside funds 
forpilot demonstration projects through a new Carbon Storage Research Corporation. 

• A iow-carbon fuel standard. The bill would establish a low-carbon fuel standard within 
three years after the bill is passed, but does not contain the details of such a standard in 
the actual legislation. 

• New energy-efficient building standards. The bill would implement new standards 
based on the International Energy Conservation Code for commercial buildings and the 
American Society of Heating, Refrigeration, and Air Conditioning Engineers standards 
for residential buildings, with the two standards based on "each model code or standard 
released after the date of enactment of the Act." 1 The bill also requires the federal gov- 
ernment to provide financial support for commercial and residential retrofits in order to 
achieve compliance with the standards. 

• New fuel-efficiency standards for motor vehicles. The bill authorizes the president 
to set these new standards based on what is achievable by the automobile industry but 
designed to achieve emissions reductions at the same level as California law ABI493. 
The California regulations aim to reduce greenhouse gas emissions from new vehicles by 
23 percent by 2012 and by 30 percent as of 2016. 

• New industrial energy-efficiency standards. The bill would require the development 
of energy-efficiency standards for factories and other types of industrial plants, with the 
task of doing so assigned to the Secretary of Energy. 

Because these additional provisions of ACESA do not include specific regulations, it is 
not possible to consider categorically what their impact is likely to be on employment 
or economic growth. But it is possible to calculate broadly how these new regulatory 
measures would operate along with the two measures in ACESA — the renewable 
electricity standard and the carbon cap-and-trade program — where detailed regulatory 
standards are presented. We therefore consider those two detailed regulatory programs 
within the ACESA. 


tinting In 0<*a« Enemy 


10 Political Economy Research Institute • Center for American Progress | The Economic Benefits of im 



308 


Renewable energy electricity standard 

ACESA proposes that six percent of ail electricity generation supplied by retail electricity 
providers in the United States must come from renewable energy sources by 2012, rising 
to IS percent by 2020. These renewable-energy sources include wind, solar, geothermal, 
biomass, municipal waste, and hydropower. The draft legislation includes a provision 
allowing utility companies that surpass the standard to trade their credits to other compa- 
nies. Consequently, not all retail electricity companies will necessarily need to meet the 
standard themselves, though on average the standard would hold for all retailers. 

To analyze the implications of this standard, we draw on the most recent energy 
forecasts in the Annual Energy Outlook 2009, published by the Department of Energy's 
Energy Information Administration. We specifically base our analysis of the forthcom- 
ing renewable energy electricity standards on the Energy Information Administration's 
so-called “reference case." This reference case takes into account existing policies to esti- 
mate the impact of this standard on the economy, but it does not consider how possible 
new policies or other future developments — such as new technological advances — 
could influence the ways a renewable energy standard would impact the economy’s 
overall performance. 

Based on this reference case from the EIA, the United States already meets the six percent 
renewable standard set for 2012. Moreover, based on the reference-case forecasts in the 
2009 Annual Energy Outlook, the new regulations would not be difficult for retail energy 
suppliers to reach until around 2018, when the standard would rise to 14 percent. 

But how much additional investment in renewable electricity generation would be 
needed to meet the IS percent standard by 2020? The EIA estimates that our nation’s 
overall available electricity supply would total 4,618 kilowatt hours by 2020. If IS 
percent of this came from renewable sources, annual renewable electricity generation 
would total about 690 kwhs. 

We estimate that total installed renewable-energy electricity generation capacity would 
have to increase by about S3 gigawatts from its current level to generate 690 kilowatts of 
electricity from renewable sources by 2020. The dollar value of this investment would 
total approximately $148 billion. If we spread out this level of investment over the next 
decade, it would amount to approximately $15 billion in investment each year (see 
Appendix 1 on page 48 for the detailed analysis). 

The 15-percent renewable electricity mandate is not the only provision in ACESA that 
will encourage investments in the production of renewable energy-based electricity. Other 
provisions in ACESA — such as the cap-and-trade program — would also create incentives 
for the more rapid shift towards renewable energy. In this broader context, it is conceiv- 
able that the U.S. economy could exceed the 15 percent target by 2020, provided other 
complementary policies operate effectively in support of that goal. 


It Political Economy Research Institute * Center for American Progress | The Economic Benefits of investing in Clean Enorgy 



309 


To calculate the level of investment needed to reach a 20 percent renewable electric- 
ity standard by 2020, we draw again from the El A database. We calculate that it would 
require an additional 1 04 gigawatts in total additional capacity to reach the 20 percent 
renewable standard, which would entail about $290 billion overall in new renewable- 
energy investments. Spread out over a decade, this level of renewable energy investment 
would be about $30 billion per year. 


Carbon cap-and-trade system 

ACESA contains a specific schedule for reducing greenhouse gas emissions through 2050 
via a carbon cap-and-trade system. That proposed schedule is as follows: 

• 201 2: Three percent below 2005 emissions levels, which is 1 2 percent above 1990 
emissions levels. 

• 2020: Twenty percent below 200S, which is seven percent below 1990 emissions levels. 

• 2030: Forty-two percent below 2005 (33 percent below 1990 levels). 

• 2050: Eighty-three percent below 2005 (80 percent below 1990 levels). 

Under this schedule — or any schedule ultimately endorsed by Congress and signed by 
the president — new costs would be imposed on businesses for emitting carbon into the 
atmosphere while businesses that use clean energy, or improve their efficiency, could see 
savings in their energy bills. Businesses will pass along a significant share of these costs 
and savings to consumers. The net result would be to discourage both businesses and 
consumers from consuming energy from carbon-emitting sources; and to correspondingly 
promote both energy efficiency and reliance on clean energy sources. 

In tbis way, a carbon cap-and-trade system would operate in concert with the foil range 
of incentives included in the economic stimulus programs and ACESA to shift overall 
energy production and consumption toward efficiency and renewable sources and away 
from high-carbon fuels. How much a carbon cap would reduce conventional fossil fuel 
consumption and encourage clean-energy sources and efficiency would depend on how 
large are the additional costs imposed by any such measure. It would also depend on how 
affordable are the clean-energy alternatives to conventional fossil foe! consumption. 

We can illustrate this point with a simple example. According to the Environmental 
Protection Agency’s most recent model of the ACESA draft, the carbon-cap component 
of the proposal would produce an increase in gasoline prices of about 10 percent relative 
to the reference case as of 2030; the reference case price is approximately $4.15 per gallon, 
while under cap-and-trade, F.PA forecasts the price at about $4.50 per gallon. How much 
is a 10-percent increase in gasoline prices likely to affect economic activity more broadly? 


1 2 Political Economy Research Institute • Center for American Progress j The Economic Renews of investing in Clean Energy 



310 


According to many standard references in economic studies, what economists term the 
“price elasticity of demand" for gasoline is in the range of -0.3. 4 This price elasticity esti- 
mate refers to how much demand for gasoline would fall when the price of gasoline rises. 
The estimate of a -0.3 elasticity means that if the price of gasoline rises by 10 percent 
then demand would fall by three percent. Using the EPA model, gasoline prices will rise 
by 10 percent relative to the reference case — from about $4.15 to $4.50 per gallon — 
due to the carbon cap, which in turn will mean gasoline consumption would fall by 
3 percent relative to the reference case. 

Deriving this result is completely dependent on working with the price elasticity figure 
of -0.3. But the price elasticity could also be raised substantially if, for example, there 
were affordable and readily accessible options for raising efficiency and purchasing 
renewable energy sources. If accessibility to public transportation improved substantially 
and ifbiomass fuels became widely available and price competitive — two outcomes 
that are likely to happen because of economic stimulus programs within ARRA and the 
full range of incentives included in the ACESA — then we can imagine that the price 
elasticity for gasoline could increase from -0.3 to -0.6. This would mean that a i 0-percent 
price increase in gasoline would reduce gasoline consumption by six percent rather than 
three percent At the same time, consumers need not sec their costs for transportation 
rise, since clean-energy investments are aimed precisely at encouraging energy-efficient 
vehicles, improving the quality of public transit offerings, and driving down the cost of 
renewable energy sources for automobile fuel. 

Overall, we can sec once again that the full effects of the cap-and-tradc system interact- 
ing with other dean-energy incentives in the economy under ARRA and other elements 
of the ACESA will encourage businesses, households, state and local governments to 
embrace the dean-energy investment agenda, including the opportunities for their invest- 
ments to be subsidized by federal government programs. We will now examine how this 
full range of incentives could generate in the range of $150 billion per year in new clean- 
energy investments throughout the U.S. economy. 


13 Political Economy Research Institute • Center for American Progress | The economic Benefits of investing in Clean Energy 



311 


Creating $150 billion a year in 
clean-energy investments 


Our analysts of how the ARRA stimulus measure and ACESA will work together as 
complementary initiatives allows us to estimate an overall level of new clean-energy 
investments in the United States in the range of $150 billion per year over roughly the next 
decade. In addition to our assessment of the various incentives and subsidies provided by 
the ARRA, this calculation is based on our analysis of the potential size of the overall mar- 
ket for clean-energy investments in the United States, including unsubsidi 2 ed investments 
by businesses as well as investments receiving some form of government subsidy. 

A total level of dean-energy investment spending in this range would represent about 
eight percent of total annual private investment in the U.S. economy as of 2007 and about 
1.1 percent of 2007 U.S. gross domestic product. By "investments" we refer to spending 
that either improves energy efficiency or contributes toward the expansion of renewable 
energy supplies. Retrofitting buildings, for example, is an energy-efficiency investment, 
while research on improving the cost competitiveness of biomass fuels and building wind 
farms are forms of renewable-energy investments. 

A crucial feature of our approach is that we include in our $150 billion estimate only invest- 
ments that have the potential to significantly expand employment opportunities in the U.S. 
economy. There are major areas of energy-effidency investments that will not generate a 
large net expansion of employment, including building energy-efficient automobiles and 
appliances as well as construction of new buildings that operate at higher efficiency levels 
than the existing building stock. In these cases, the employment requirements are not likely 
to be larger than those for inefficient cars, appliances and buildings, though the gains in 
efficiency will make important contributions to reducing greenhouse gas emissions. 

We can consider the overall level of clean-energy investments according to two criteria: 

• Investments that are either completely funded by the federal government or are 
government-subsidized private investments. 

• Unsubsidized private investments that result from the overall expansion of markets, new 
technologies and related opportunities in the clean-energy sector. 

We first consider the scope of the subsidized market then address more broadly the overall 
market, including both the subsidized and unsubsidized segments. 


14 Political Economy Research Institute • Center for American Progress | Ecc nlc Bern rs of invest <> > 1 - i . ») 



312 


Subsidized public- and private-sector investments 

Establishing an estimate for government funded and subsidized investments requires us 
to work from two concrete reference points. The first is the spending levels that are likely 
to result through ARRA. In a previous section of the paper we estimated this high-end 
level at $56 billion per year between 2010 and 2014, including federal spending as well 
as state and local government spending and private investments that could be induced by 
the federal programs. This level of investment is predicated on private investors taking full 
advantage of the range of clean-energy investment initiatives being offered through the 
ARRA alongside the range of regulations and incentives included in ACESA. 

The second reference point is our estimate that the total level of new investments in renew- 
able energy electricity generating capacity would need to be around $15 billion per year 
over 10 years to meet the 2020 standard now included in ACESA. It is likely that a signifi- 
cant share of this new renewable energy investment capacity would be subsidized through 
ARRA-based incentive programs. As such, we would be double-counting to assume that 
all $ 1 5 billion per year in renewable energy electrical generating capacity would be an 
increment of investment spending in addition to the $56 billion year in clean-energy 
investments included in the ARRA. It is more reasonable to assume that some of the new 
renewable electricity capacity will be financed out of the $56 billion in ARRA spending, 
while a significant share will be come from unsubsidned private investors. 


Expanding unsubsidized private-sector, ciean-energy investments 

Moving beyond the specific case of the renewable electricity standard detailed on 
pages 11-12, we can, more generally, expect that the opportunities generated by the 
combination of ARRA and ACESA will lead to an expansion of the new investment 
opportunities connected to clean energy, a corresponding rise in business opportunities, 
and a related increase in productive efficiencies as these investment projects take root 
across the country. That is, the unsubsidized market for clean-energy investments will 
expand as an outgrowth of the subsidized market as businesses create and profit from 
these new opportunities and as technologies improve. That in turn means the cost of 
producing clean energy or increasing efficiency will fall as linkages strengthen among 
companies operating in new clean-energy sectors and as financial institutions supply 
more funds to support these investments. 5 


Market potential for job-creating clean-energy investments 

How large is the potential market for energy efficiency and renewable energy investments 
that will also generate job creation in the United States, including both the subsidized and 
unsubsidized segments of the market? We can obtain a sense of this by considering some of 


15 Political Economy Research Institute • Center for American Progress j The Economic Boults of Investing in Clean tnergy 



313 


the possibilities in distinct parts of the overall market. As we will demonstrate, the potential 
market for energy efficiency investments that also are newsources of job creation is around 
$110 billion per year.* A rough approximation, which assumes an average investment in 
retrofits of around $4,000 per unit, implies an overall potential market of $400 billion. 


Energy efficiency 

Improving energy efficiency through building retrofits, public transportation, freight 
rail, and smart-grid electrical transmission systems involves technologies that are already 
known. The returns on investment are also fairly certain and rapid. Once a growing market 
infrastructure is established to support these investment activities, the private opportu- 
nities will become increasingly clear to a widening range of investors operating without 
government subsidies. Let’s consider each of these investment categories in turn. 


An average-sized single-family home in the United States would require an investment of 
as little as $2,500 in energy-efficiency retrofits to produce a cost savings in the range of 30 
percent per year/ "This would involve caulking to plug air leaks in the house and adding insu- 
lation to attics and basement ceilings. For an additional $2,S00, further energy savings are 
available through replacing windows with air leaks and installing energy efficient appliances. 

Despite these potential savings, most homeowners have not retrofitted their homes 
because they are unaware of the costs savings available to them or they cannot afford the 
upfront expenses and time commitment involved. But these barriers to retrofit invest- 
ments will come down through the specific government spending programs that finance 
retrofits, the building codes that establish higher efficiency standards in buildings, and the 
more general regulatory environment that raises the costs of bnrning conventional fossil 
fuels. As the market becomes more extensive and efficient, this will further encourage 
new investment in retrofits. In particular, banks, utility companies and various types of 
nonprofit groups will increasingly organize themselves to supply the upfront financing for 
these projects. In addition, construction crews will begin to organize their services to take 
advantage of the expanding opportunities. 

The potential market for building retrofits is huge. There are roughly 1 10 million occupied 
housing units in the United States, including 80 million single-family detached homes, as 
well as smaller numbers of attached units, apartments, and trailers. As a rough approxima- 
tion, assuming an average investment in retrofits would be around $4,000 per unit, implies 
an overall potential market of $400 billion. We would then add the corresponding market 
for non-residential structures. The U.S. Green Building Council surveyed the existing 
stock of these structures in 2008, including all educational buildings, hospitals, retail 
outlets, and office buildings of various sorts. They estimated the costs of retrofitting all of 
these buildings at $358 billion. 8 


o»rtc Benefits of Investing it' Ooari Lnenjy 


16 Political Economy Research institute * Center for American Progress | ’NtEconc 



314 


In short, the potential market for building retrofits alone in the United States is in the 
range of $800 billion. If all of these structures were retrofitted over the course of a decade, 
then it would provide a high-end level of this type of energy efficiency investment at $80 
billion per year. 


A recent study by Mark Chupka, Robert Earle, Peter Fox-Penner, and Ryan Hledik 9 provides 
a basis for roughly estimating the potential market for smart grid investments over the next 
decade. They project future investment in electrical distribution and transmission infrastruc- 
ture will need to be $44 billion per year to meet the growing demand for electricity over the 
20-year period between 20 1 0 and 2030. Their estimate includes all types of investment in 
electrical transmission equipment, including conventional and smart-grid distribution and 
transmission systems. They do not specify what they consider as a likely breakdown between 
conventional and smart-grid systems within this overall investment agenda. 

One consideration here is that the use of electricity generation from renewable sources 
often entails accessing energy from more remote locations where wind, sun, or tidal waves 
can be relatively intense. Making increased use of these new electrical generating sources 
will correspondingly increase demand for investment in transmission lines. Operating 
electricity generating systems through renewable energy sources will also entail an 
improved capacity for transmission systems to deal with the intermittent flow of energy 
coming from wind and solar sources. This is a key feature of smart grid systems. We would 
argue that it is reasonable to assume that roughly half — for instance, about $20 billion of 
the overall $44 billion in annual investments — will represent energy efficiency improve- 
ments and investments needed to support the growth of renewable energy generation, 

Public Transportation 

Funds for public transportation will come entirely from the public sector, but some of these 
funds will come from state and local governments to match levels of support provided by the 
federal government. The ARRA allocates $23 billion for all transportation investments. This 
includes highways and other road projects in addition to public transportation, but does not 
specify the breakdown in spending levels between these two broad areas. 

Given the environmental benefits of public transportation and the country's needs for 
improved services, it is reasonable to assume that roughly half of these funds are devoted 
to public transportation. If we also allow that state and local governments match this 
level of funding on a one-for-onc basis, then overall public investment binding would 
total about $25 billion. 10 Spread out on an annual basis, this would mean $5 billion per 
year over the full span of the economic stimulus program. We also anticipate this level of 
funding for public transportation will extend beyond the life of ARRA itself as one feature 
of a broader clean-energy investment push in the United States. This would mean, in total, 
$5 billion in investment over the full 10-year period being considered. 


17 Political Economy Research Institute • Center for American Progress | The Economic Benefits of Investing in Clean Energy 



315 


Energy cogeneration systems utilize the heat generated by industrial processes to generate 
electricity on-site, 'these systems therefore offer a significant means for utilizing available 
energy sources at higher levels of efficiency. These investments will thus be encouraged — 
along with other energy efficiency investments — through regulations that set a cap on 
carbon emissions and subsequent increases in conventional fossil fuel prices. The Energy 
Information Administration projects that investment in on-site cogeneration is expected 
to grow by about 40 percent between 200? and 2030.“ It is reasonable to expect that this 
will roughly entail an additional $5 billion in investment each year. 


Investments in renewable energy — wind, solar, biomass, geothermal, and hydroelectric 
power — will aim at advancing technologies to the point where they are fully cost-compet- 
itive with conventional fossil fuels, and to integrate these cost-competitive technologies 
into the U.S, economy's ongoing operations. This will also proceed across the range of 
markets in which renewable energy sources are viable, including on- and off-grid electric- 
ity generation, non-electricity forms of energy generation, and alternative fuels. 

On-grid renewable energy 

As we have discussed, it would require about $ 1 S billion a year in renewable energy invest- 
ments in order to reach the IS percent renewable electricity standard by 2020 as stipulated 
in the current draft of ACES A. 'Hie renewable electricity standard would apply to elec- 
tricity retailers who supply energy to residential, commercial, and industrial customers 
through the national distribution system — that is, "the grid." 

But if the investments in renewable electricity were to grow more rapidly as technologies 
improve, then renewable energy sources could supply as much as 20 percent of total electric- 
ity as of 2020 to the electricity grid. To achieve this level of renewable electricity supply by 
2020, it would entail new investments of about $30 billion per year over the next decade. 

Off- grid renewable electricity 

It is reasonable to anticipate a comparable growth in renewable energy investments for 
end-users of electrical power. 'This includes businesses and households who generate 
electricity off the grid for their own use from solar, wind, geothermal, and biomass 
sources. The EIA, for example, projects that end-use generation of electricity from 
renewable sources will grow at an annual rate of 6.5 percent from 2007 to 2030. This 
level of off-grid power generation using renewable energy would involve approximately 
SS6 billion in investment over approximately 20 years, or about $3 billion a year. 11 This 
figure does not include any effects on investment levels from climate change legislation. 
The rate of investment would therefore likely increase further as a result of the range of 
incentives and regulations established by the ACESA. 


« of investing m Ckwi Energy 


18 Political Economy Research Institute - Center for American Progress | The Economic Benefit t 



316 


Nonsleam renewable energy 

Electricity represents only one form of renewable energy that final users can generate 
themselves. There are other forms of decentralized renewable energy production such 
as geothermal pumps, solar hot water systems and even wood-burning stoves, in which 
individual households and businesses alike could invest. If we assume that the investment 
in these non-electrical forms of energy production is roughly equivalent to investment in 
renewable electricity generation by end-users — as calculated by the EiA — then invest- 
ment by final users would total about $3 billion per year. 


Biofuels from non-food sources — for example, celluiosic biofuels — that can be used for 
motor vehicle transportation represent another area of growing clean-energy invest- 
ment. By 2020, the market for ethanol from a variety of sources is expected to be about 
20 billion gallons per year. 13 To produce one-third of this quantity of ethanol from 
celluiosic sources by 2020, additional investment of about $50 billion would be needed 
over 10 years, or about $5 billion per year. 14 


Clean-energy investments can total $150 billion a year 

We calculate that overall clean-energy investments in the United States that also promote 
job creation could reach $150 billion per year (see Table 3). This estimate is based, first, 
on implementation of public policies included in the economic stimulus program and 


TABLE 3 

Breakdown of $150 billion in potential annual U.S. dean-energy investment 

Includes only dean-energy investment areas that expand job opportunities 


Clean-energy investment area 
Energy efficiency 
Building retrofits 
Smart grid 

Public transportation 
Cogeneration 
Renewable energy 
On grid renewable electricity 
Off grid renewable electricity 
Off grid renewable— nonelectrical 
Alternative motor fuels 
Total 


Potential annual investment level 

$80 billion 
$20 billion 
$S billion 
$5 billion 


$30 billion 
$3 billion 
$3 billion 
$5 billion 
$151 billion 


19 Political Economy Research Institute • Center for American Progress | 'Me I'.nr.cxnu. fXv-e.V-. o' >.« ,r Us an i oemy 



317 


ACESA, including as much as $56 billion per year in direct public spending and subsidies 
for private investors over the life of ARRA, which will encourage state and local govern- 
ment clean-energy programs and private-sector investments. We also allow for the strong 
possibility that accelerated private investment rates could occur as technologies advance 
and market structures develop, producing a cumulative, self-reinforcing process of innova- 
tion and market expansion. This self-reinforcing process would proceed primarily without 
relying on government subsidies. At the same time, achieving this kind of seif-reinforcing 
investment momentum in clean energy is precisely the aim of the combined incentives 
advanced through ARRA and ACESA. It is through taking account of these various factors 
that we conclude that the overall level of dean-energy investments that will boost employ- 
ment growth in the United States can be in the range of $150 billion annually. 


20 Political Economy Research Institute • Center for American Progress | The Economic 



318 


Methodologies for estimating 
employment and GDP growth 


The consequences of public policies on U.S. economic growth and employment growth 
necessarily happen over time. That's why we cannot know with certainty what the effects 
of policy will be. That’s also why we rely on economic models and various forecasting 
techniques to generate estimates of what future outcomes are likely to be. 

But there is a wide range of approaches to generating such estimates. Before proceeding 
with our discussions as to how policies within ARRA and ACESA are likely to affect future 
employment and gross domestic income growth, it is important to consider these meth- 
odological points in some detail. 

First, we have developed an approach to estimating the employment effects of clean- 
energy investments that is, in our view, generally reliable. Our approach is reliable because 
it operates on the basis of very few assumptions and is firmly grounded in the detailed 
realities of the contemporary U.S. economy. Specifically, it is based on observing the cur- 
rent detailed industrial survey data of U.S. business activity. 

From these survey figures, as organized by the U.S. Department of Commerce into its 
input-output model, we undertake a very simple set of exercises. We consider in today’s 
economy how employment levels would change when we shift the proportions of overall 
spending on energy from high-carbon sources to clean-energy and energy efficiency. 

In contrast with our approach, models that attempt to estimate the effects of environmen- 
tal policies such as a carbon cap on GDP growth over the next 20-40 years rely on a much 
larger number of assumptions about the economy’s future growth path. These forecasting 
models are thus highly sensitive to the assumptions on which the models are based. 

We will demonstrate that these models are generally unreliable in predicting future GDP 
growth even in the short term — much less over two to four decades. At the same time, 
these more complex forecasting models do offer useful perspectives on how one should 
think about the effects of a given policy, such as a carbon cap, on GDP growth. We will 
detail below why we consider our model to be the best way to calculate the employment 
effects of shifting energy spending from high-carbon fuels to clean-energy investments, 
why we think the long-term GDP forecasting models are highly fragile and unreliable, but 
also why these models nevertheless offer perspectives that are broadly useful in assessing 
the effects of a carbon cap on GDP. 


21 Political Economy Research Institute • Center for American Progress | The economic e-ooe.'::". c ‘ i-wost cii’tm ; ner.jv 



319 


Our approach to estimating employment growth 

Our employment estimates are figures generated directly from data from the Commerce 
Department's surveys of businesses within the United States, and organized systematically 
within their input-output model. Within the given structure of the current U.S. economy, 
these figures provide the most accurate evidence available as to what happens within private 
and public enterprises when they produce the economies 1 goods and services. The data help 
us and others know how many workers were hired to produce a given set of products or 
services, and what kinds of materials were purchased in the process. Our methodology is to 
work within this detailed survey evidence and data set and to pose simple questions. 

Here's one example of how our methodology works (for a complete analysis, see 
Appendix 1 on page 48). If we spend an additional $ 1 million on building retrofits, how 
will businesses utilize that money to actually complete the retrofit project? How much 
of the $1 million will they spend on hiring workers, and how much will they spend on 
non-labor inputs, including materials, energy costs, and renting office space? And when 
businesses spend on non-labor inputs, what are the employment effects through giving 
orders to suppliers, such as lumber and glass producers or trucking companies? 

We also ask the same questions within the oil industry. To produce $1 million worth of 
petroleum that can be sold to consumers at gas stations as a refined product, how many 
workers will need to be employed, and how much money will need to be spent on non- 
labor inputs? 'Through this approach, wc have been able to make observations as to the 
potential job effects of alternative energy investment and spending strategies at a level of 
detail that is not available through any alternative approach. 

Estimating employment gains and losses within the input-output model is possible 
because we are comparing the impact of total spending within clean-energy sectors and 
conventional fossil fuel sectors. In particular, we do not distinguish between investment 
and spending in creating new productive capacity as opposed to all other forms ofspend- 
ing within each sector. But there is an important distinction here to note with respect to 
the type of spending that will be predominant within dean-energy industries versus con- 
ventional fossil fuel industries. In the case of clean energy, virtually all the new spending 
will be devoted to investments to either promote energy efficiency or to expand renewable 
energy generating capacity. This is precisely because the existing level of productive capac- 
ity in energy efficiency and renewable energy remains tiny relative to the long-term needs. 

In contrast, conventional fossil fuel industries spend on extracting, refining, transporting, 
and delivering retail supplies within an already mature and vast productive infrastructure. 
New investments to expand the fossil fuel productive infrastructure will therefore account 
for a much smaller proportion of total spending within the sector than will be the case with 
clean energy. To be sure, exploring for new sources of oil and gas frequently entail enormous 
amounts of up front investments — this is less the case with coal, where the location of huge 


22 Political Economy Research Institute < Center for American Progress | The Economic Benches of Investing In Clean Energy 



320 


deposits of existing reserves are well known. Once companies are ready to extract new fossil 
fuel supplies, high levels of up-front investments will again be required. Overall though, 
these activities will operate within a fossil fuel energy infrastructure that is already highly 
developed, so that the ability to deliver these newly developed energy supply sources to 
market can proceed without requiring large-scale new investments. 

There are certainly weaknesses with our use of the input-output model. The most 
important are that it is a static model, a linear model, and a model that does not take into 
account structural changes in the economy. But these flaws in our approach need to be 
considered in the context of alternative approaches that operate with even more serious 
deficiencies. So let’s first consider these points about the static model, the linear model 
and structural change. 


Static model 

We make estimates as though everything is happening at one fixed point in time. A more 
realistic picture of the economy would of course have to recognize that the effects of 
public- and private-sector spending will take place in sequences over time, and that these 
timing effects are important. Adding a time dimension would make the model 'dynamic," 
in the technical jargon. 

The problem here is how to incorporate a time dimension in an effective way. In principle, 
a dynamic model does offer a more complete picture than a static model as to how the 
economy operates overtime. But dynamic forecasting models are generally unreliable 
in their forecasts, as we detail below. We therefore think it is preferable to work within a 
simpler framework, and draw out assessments within this simple framework of how transi- 
tions affect the results eventually. 


Linear model 

Our model also assumes that a given amount of spending will have a proportionate effect 
on employment no matter how much the level of spending changes, either up or down. 

For example, the impact of spending $ 1 billion on an energy efficiency project will be 
exactly 1,000 times greater than spending only $ 1 million on the exact same project. 

The most significant consequence here is that we take no account of potential supply 
constraints in moving from a $ 1 million project to a $ 1 billion project. Under some cir- 
cumstances, this could be a serious deficiency in the model. But under current conditions 
in the U.S. economy — with widespread slack in the midst of a severe recession, unemploy- 
ment and with private-sector lending and investment almost flat — we are on safe grounds 
with our assumption that supply constraints will not exert a major influence on how the 


23 Political Cconomy Research Institute • Center for American Progress | The Economic Benefits of investing m Clean Energy 



321 


spending on green recovery effects the economy. Supply constraints could create prob- 
lems for our estimation methods if the U.S. economy begins to approach full employment. 
But the economy has not approached full employment since the late 1990s, and then only 
briefly. We will certainly have time to make appropriate adjustments in our model if and 
when the economy again begins moving toward full employment. 

Another dimension of our assumption of linearity is that it assumes that prices remain 
fixed, regardless of changes in demand. Our model, for example, docs not take account of 
the effects of prices of solar panels when demand for these panels falls due to the reces- 
sion. Again, a more fully specified model would take account of such factors — th at is, if 
the recession leads to reduced demand for solar panels then prices of the panels will fall, 
all else being equal. This means that for a given level of spending more panels will be pur- 
chased at lower prices per panel. "The upshot for employment estimates is that a given level 
of spending on panels will likely mean that more jobs will get created to build, deliver, and 
install the panels. But here again, the forecasting record of more fully specified models that 
do attempt to incorporate such price effects is not encouraging. 


Structural change 

Our employment estimates are derived from the most recent 2007 input-output model of 
the U.S. economy, and reflect the industrial structure of the economy as of the most recent 
industrial surveys. But it is certainly the case that the U.S. industrial structure will be 
evolving over time. This issue would seem especially relevant in considering employment 
conditions within the clean-energy economy, since our economy will certainly undergo 
significant structural changes as technologies develop. How does this reality of structural 
change affect the reliability of our employment forecasts? 

In fact, the use ofworkers in clean energy industries and services will not change at an 
equivalently rapid pace over time even though clean energy technologies will be advanc- 
ing substantially. Consider this example: Ahigh proportion of energy-efficiency invest- 
ments — such as for building retrofits, public transportation, and smart grid electrical 
transmission systems — will heavily rely on the construction industry. Detailed aspects of 
the work involved in retrofitting a home, for example, will change as retrofitting methods 
develop. But the overall level of demand for workers to conduct retrofits — whatever are 
the detailed features of such projects — is likely to remain fairly stable. 

A similar situation is likely to hold with the production of renewable energy, regardless 
of whether the solar panels, wind turbines, or biomass fuel refining plants are more or 
less efficient because of technologies that convert their raw materials into useful energy. 
That is, the need to employ workers to manufacture, transport, and install these newly 
developed renewable energy products is likely to remain fairly stable as a proportion of 
overall activity in the industry. 


24 Political Economy Research Institute • Center for American Progress | T hi ! conmmc h* m k I nerov 



322 


Overall, then, we are confident that our input-output framework provides the basis for as 
accurate a set of job estimates as can be obtained through the existing available models 
and modeling techniques. 


Forecasting models for GDP growth 

Models that forecast long-term GDP growth face much more difficult challenges than 
our simple framework for estimating employment effects from a shift from high-carbon 
fuels to clean energy investments within the existing economic structure. This is because 
the long-term forecasting models not only aim to describe the economy as it functions at 
present but attempt to predict how its operations will evolve into the future. This becomes 
difficult, as basic features of the economy’s future growth path are simply unknowable at 
the time the forecasts are produced. 

There is little dispute abuut the dismal record of economic forecasting models in estimat- 
ing the economy’s growth path even over the short term. In this regard, it is useful to 
recall two highly relevant and interrelated cases in point. Few, if any, economic forecasting 
models predicted that by June 2008 crude oil would be selling at $140 a barrel — including 
forecasts generated less than one year before crude hit that record mark. 15 Once the price 
of crude oil did rise to $140 a barrel, few forecasters then predicted that the price would 
collapse to $35 a barrel only six months later. 

More generally, almost no economic forecasts predicted that the U.S. economy would 
enter into a recession of historic severity in December 2007. This includes even the fore- 
casts that were published after the recession had already begun. 16 

One faces still greater difficulties in attempting to provide accurate forecasts over a long 
time period — such as 20 to 40 years — of the effects on economic growth of a carbon cap, 
such as that proposed in ACESA. This is because the impact of any carbon cap-and-trade 
initiative will depend, first of all, on the overall policy agenda focused on counteracting 
global climate change. The economic stimulus program, for example, includes about $100 
billion in federal funds to advance energy efficiency and the commercialization of renew- 
able sources of energy, and another $ 1 80 billion of incentives for state and local govern- 
ments and private businesses to invest in clean-energy projects. 

Policy measures on this large a scale will certainly accelerate energy efficiency measures 
and lower renewable energy prices such that they become increasingly competitive with 
high-carbon energy sources. But we cannot know in advance the pace of this process. We 
cannot know how long such supportive measures for energy efficiency and renewable 
energy will be forthcoming from government policy. 


25 Political Economy Research Institute • Center for American Progress 1 The Economic Benefits of it 



323 


These considerations will be decisive in determining the impact of a carbon cap, and 
related measures, on economic growth. 1 ' In short, we cannot assume that models that 
attempt to assess the impact of a cap-and-trade policy on U.S. gross domestic product 
in 2030 or 2050 are reliable in terms of their GDP forecasts. This is certainly true when 
judged relative to our simple input-output framework for estimating the employment 
effects of shifting investment priorities from conventional fossil fuels to clean energy 
within a given economic structure. Our input-output framework enables us to observe in 
detail how any such shifts in investment priorities — even within a given overall economy 
and at a given level of GDP, without making any assumptions at all about the pace of GDP 
growth — can themselves produce significant changes in employment opportunities. 

At the same time, these other forecasting exercises can still offer useful frameworks and 
perspectives for our efforts at assessing how a cap-and-trade policy or related policy interven- 
tions would impact economic growth. In the discussion beginning on page 40, we therefore 
consider the effects of a cap-and-trade program on GDP growth that draws on a range of 
existing forecasting exercises focused on this question. 


26 Political Economy Research Institute • Center for American Progress j "ho t.'cvoni’s- H; U'lv.i-or, 'n '.nv o ~wrv 



324 


Job creation through 
clean-energy investments 


Spending money in any area of the U.S, economy will create jobs since people are needed 
to produce any good or service that the economy supplies. This is true regardless of 
whether the spending is done by private businesses, households, or a government entity. 
But spending directed toward a dean-energy investment program will have a much larger 
positive impact on jobs than spending in other areas, including the oil industry even when 
taking into account all phases of oil production, refining, transportation, and marketing. 

Spending on clean energy will create a higher net source of job creation in the United 
States relative to spending the same amount of money on high-carbon fuels because of the 
three sources of job creation associated with any expansion of spending — direct, indirect, 
and induced effects. These three effects in, say, investments in home retrofitting and build- 
ing wind turbines can be described in this way: 

• Direct effects. The jobs created by retrofitting homes to make them more energy 
efficient, or building wind turbines. 

• Indirect effects. The jobs associated with industries that supply intermediate goods for 
the building retrofits or wind turbines, such as lumber, steel, and transportation. 

• Induced effects. The expansion of employment that results when people who are paid 
in the construction or steel industries spend the money they have earned from pro- 
ducing these immediate and intermediate goods for clean energy industries on other 
products in the economy. 

Now let's consider how these various sources of job creation operate with respect to 
investments in both the clean-energy and conventional fossil fuels. 


Direct and indirect job creation 

Our analysis here begins with the U.S. industrial surveys and input-output tables we used 
for our models to generate results on direct and indirect job creation. 111 Table 4 shows the 
extent of direct and indirect job creation generated by $1 million in expenditures on pro- 
ducing alternative energy sources. 19 We present the total job creation figures as absolute 


27 Political Economy Research Institute • Center for American Progress | The Economic Rcne-hH investing in Clean Energy 



325 


TABLE 4 

Employment impacts of alternative energy sources 

Job creation per $1 million in output 


Energy source 

Direct job creation per 
$1 million in output 
(# of jobs) 

Indirect job creation per 
SI million in output 
(# of jobs) 

Direct and indirect job creation 
per SI mitlion in output 
of jobs) 

Direct and indirect job 
creation relative to oil 
{% difference) 

Fossil fuels 

Oil and natural gas 

0.8 

2.9 

3.7 

- 

Coal 

19 

3.0 

49 

*32 4li 

Energy efficiency 

Building retrofits 

7.0 

4.9 

11.9 

*221 6% 

Mass transit/freight re 

lil (90% MT. iO%FR) 11.0 

4.9 

15.9 

+329.7% 

Smart grid 

4.3 

4£ 

8.9 

+140.5% 

Renewables 

Wind 

4,6 

4.9 

9.5 

+156.8% 

Solar 

5.4 

4.4 

9,8 

+164.9% 

Biomass 

7.4 

S.O 

12.4 

+235.1% 


numbers of jobs as well as in relative terms, as a percentage of job growth relative to that 
generated by spending $ 1 million on oil and natural gas. 

As the table shows, spending Si million on energy efficiency and renewable energy pro- 
duces a much larger expansion of employment than spending the same amount on fossil 
fuels or nuclear energy. Among fossil fuels, job creation in coal is about 32 percent greater 
than that for oil and natural gas. 

The employment creation for energy efficiency — retrofitting and mass transit — is 
2.S times to four times larger than that for oil and natural gas. With renewable energy, 
the job creation ranges between 2.5 times to three times more than that for oil and gas. 


Induced job creation 

It is more difficult to estimate the size of the induced employment effects — or what 
is commonly termed the "consumption multiplier" within standard macroeconomic 
models — than to estimate direct and indirect effects. There are still aspects of the induced 
effects we can estimate with a high degree of confidence. 

In particular, we have a good sense of what is termed the “consumption function/’ or what 
percentage of the additional money people receive from being newly employed will be 
spent. But it is more difficult to project accurately what the overall employment effects 
will always be of that extra spending. 


28 Political Economy Research Institute ■ Center for American Progress | The Economic Benefits of inveuino '»■> Cfean Energy 



326 


First, the magnitude of the induced effect will depend on existing conditions in the econ- 
omy. If unemployment is high, then this will mean that there are a large number of people 
able and willing to take jobs if new job opportunities open up. But if unemployment is low, 
then there will be less room for employment to expand — even if newly employed people 
have more money to spend. 

Similarly, if there is slack in the economy’s physical resources, then the capacity to expand 
employment will be greater — and the induced effects larger. If the economy is operating 
at a high level of activity, there is not likely to be a large employment gain beyond what 
resulted from the initial direct and indirect effects. 

Given the rapid deterioration of economic conditions over the past 18 months — including 
rapidly rising rates of unemployment — the U.S. economy is not likely to bump up against 
this kind of capacity constraint in the near future. Thus we would expect the induced effects 
to be significant in the current climate. More generally, the U.S. economy has not come close 
to approximating a full employment economy since the late 1990s, and even then, the tight 
labor market conditions were sustained only briefly, until the dot.com stock market bubble 
burst Consequently, it is unlikely that the induced effects of a direct and indirect employ- 
ment expansion will be diminished by excessively tight labor markets in the future. 

We have developed a formal model to estimate the broad magnitude of the induced 
emplnyment effects more systematically. We present our procedures details in Appendix 1 
on page 48. The basic approach is straightforward: We begin by estimating how much of 
the additional employment income earned as a result of the increased investments is spent 


TABLE s 

Total employment creation through alternative energy sources 

Direct, indirect, and induced effects for $1 million in spending {induced jobs = 0.4(direct + indirect jobs)) 
Energy source Total job creation Total job creation rclat ive to oil 


Fossil fuels 

Oil and natural gas 5.2 — 

Coal 6.9 +327% 

Energy efficiency 

Building retrofits 16.7 +221.2% 

Mass transit/freight rail(90%MT. 10% FR) 223 +328.8% 

Smart grid 12.5 +140,4% 

Renewables 

Wind 133 +1553% 

Solar 137 +163.5% 

Biomass 17.4 +234.6% 


29 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in dean Energy 



327 


on household consumption. Using our basic input-output model, we estimate the number 
of jobs that this additional consumption spending wonld generate, assuming that there is 
ample excess capacity in the economy due to the prevailing high levels of unemployment. 

Working with this model, we fiud that the level of induced job creation is abont 40 percent 
ofthe level of direct plus indirect job creation. For this study, we therefore proceed under 
the assumption that induced jobs will expand overall job creation by 40 percent beyond 
what occurs through the direct plus indirect effects. We present figures for total job 
creation for all investment areas in Table 5. We can now see the total level of job creation 
through spending SI million in each energy area. The range is between 5.2 jobs in the oil 
industry to 223 jobs in mass transit. 


Overall job growth — clean-energy investments vs. conventional fossil fuels 

We combine and summarize these results on overall job creation in Figure I. This figure 
shows the total number of jobs — direct, indirect, and induced — that we estimate would 
be created from spending $i million in a combination of six clean energy investment 
areas — three energy efficiency investment areas (building retrofits, public transporta- 
tion and freight rail, and smart grid electrical transmission systems) and three renewable 
energy areas (solar power, wind power, and biomass fuels). 20 

This combination of clean-energy investments will generate about 16.7 jobs per $1 million 
in spending. As Figure 1 also shows, $ 1 million in spending within the fossil fuel industry, 
divided according to the actual proportions of spending in these sectors as of 2007 will 
generate S3 jobs in total. 

Spending a given amount of money on a clean-energy investment agenda generates 
approximately 3.2 times the number of jobs within the United States as does spending the 
same amount of money within the fossil fuel sectors. 


FIGURE 1 

Job creation through $t million in spending 

Green investments vs. fosiH fuels 

Number of jobs created 

■■■— 1 m — 


16.7 jobs 


Source: Input-Output tables at US. Commerce Department. 

More Employment estimates include direct, indirect, and induced |o!m Details of calculations presented m appendix. 


30 Political Economy Research Institute • Center for American Progress [ - ho economic Benefit* o' investing m Cte3n Energy 


328 


Sources of greater job expansion through cSean-energy investments 

Why does a combination of clean-energy investments create in excess of three times more 

jobs per a given amount of spending than the fossil fuel industry? Three factors are at work: 

• Relative labor intensity. Relative to spending within the fossil fuel industries, the clean - 
energy program — including the direct spending on specific projects plus the indirect 
spending of purchasing supplies — utilizes far more of its overall investment budget on 
hiring people, and relatively less on acquiring machines, supplies, land (either on- or 
offshore) and energy itself. 

• Domestic content. The clean-energy investment program — again, consider ing direct 
plus indirect spending — relies much more on economic activities taking place within 
the United States — such as retrofitting homes or upgrading the electrical grid system 
in communities throughout the country — and less on imports than spending within 
conventional fossil fuel sectors. We consider this issue in more detail below. 

• Pay levels. Clean-energy investments produce far more jobs at all pay levels — higher as 
well as lower-paying jobs — than the fossil fuel industry. Clean-energy investments also 
produce more jobs for a given dollar of expenditure due to the larger number of entry-level 
jobs relative to the fossil fuel industry. Workers thus benefit through the expansion of job 
opportunities at all levels within the U.S. labor market. We also return to this issue below. 


TABLE 6 

Green investments and jobs 

Major areas for green 
investment agenda 


Representative jobs 


Building retrofitting 
Mass transit/freight rail 
Smart grid 
Wind power 
Solar power 
Celluiosie biofuels 


Electricians, heating/air conditioning installers, carpenters, construction equipment operators, roofers, insulation workers, carpenter helpers, 
industrial truck drivers, construction managers, building inspectors. 

Civil engineers, rail track layers, electricians, welders, metal fabricators, engine assemblers, bus drivers, dispatchers, locomotive engineers, 
railroad conductors. 

Computer software engineers, electrical engineers, electrical equipment assemblers, electrical equipment technicians, machinists, team 
assemblers, construction laborers, operating engineers, electrical power line installers and repairers. 

Environmental engineers, iron and steel workers, millwrights, sheet metal workers, machinists, electricat equipment assemblers, construction 
equipment operators, industrial truck drivers, industrial production managers, first-line production supervisors. 

Electrical engineers, electricians, industrial machinery mechanics, welders, metal fabricators, electrical equipment assemblers, construction 
equipment operators, installation helpers, laborers, construction managers. 

Chemical engineers, chemists, chemical equipment operators, chemical technicians, mixing and blending machine operators, agricultural 
workers, industrial truck drivers, farm product purchasers, agricultural and forestry supervisors, agricultural Inspectors. 


31 Political Economy Research Institute • Center for American Progress j The Economic Benefits »«• hives! »g 'n Clean c-K'rgy 



329 


Range of jobs generated by dean-energy investments 

As Table 6 shows, building a clean-energy economy would create new job activities. Some 
of these jobs will be in specialized areas such as installing solar panels and researching new 
building material technologies. But the vast majority of jobs are in the same areas of employ- 
ment that people already work in today — in every region and state of the country. 

Constructing wind farms, for example, creates jobs for sheet metal workers, machinists 
and truck drivers, among others. Increasing the energy efficiency of buildings through 
retrofitting requires roofers, insulators and building inspectors, and expanding mass transit 
systems employs civil engineers, electricians, and dispatchers. More generally, this overall 
clean-energy investment program will provide a major boost to the construction and 
manufacturing sectors throughout the United States. 

In addition, all of these clean-energy investment strategies engage a normal range of service 
and support activities — including accountants, lawyers, office clerks, human resource manag- 
ers, cashiers, and retail sales people. We have not listed these and other related occupations in 
Table 6 because these jobs are not linked in any particular way to our six clean-energy invest- 
ment strategics. But new employment opportunities will certainly also open up in these areas 
as a result of the clean-energy investment program, through ail of the same direct, indirect, 
and induced job creation channels that are also generating the jobs we have listed in Table 6 . 

Then there’s the range of jobs by occupational groupings created through clean-energy 
investments. In Table 7 we present data on the distribution of job types that are created 


TABLE 7 

Economic activity by energy-related sector 

figures are percentages of total jobs for each sector 


Energy source Extraction Agriculture Manufacturing Construction Utilities Trade Transport 

Fossil fuels 

Oil and natural gas 14.6 0.4 13.9 2.4 11.3 6.6 13.1 

Coal 41.6 0.3 13 1 09 78 5.9 6.8 

Energy efficiency 

Building retrofits 0.5 14 13.6 61 S 0.1 7.9 2.S 

Mass transit/freight rail 0.3 0.6 7.8 21.7 0.1 4.4 54,4 

Smart grid 0.4 0.6 38.1 1S.7 0 2 63 2 3 

Renewables 

Wind 0.6 0.9 47.4 20.3 0 2 7 1 3.7 

Solar 0.5 09 37.4 23.7 02 69 3.2 

Sioriass U 60 4 20.6 0.4 0 2 3.8 2 8 


Independent admin/ 
professional 


37.5 

23.6 


12.4 

10.7 

3S.9 

198 

274 

105 


32 Political Economy Research Institute ■ Center for American Progress | The Economic Benofi!', o' Rwy • 'n -s i n.-M 



330 


through alternative-energy spending programs. As the table shows, employment is spread 
fairly evenly in the oil industry across a range of sectors, including extraction, manufactur- 
ing, utilities, transport, and administrative and professional occupations, such as lawyers, 
accountants, and technical/scientific personnel. Coal, by contrast, is much more heavily 
concentrated in extraction, with nearly 42 percent of total value coming from extraction. 

Of course, different parts of the dean-energy economy also generate different combina- 
tions of job creation. Building retrofitting is dominated by the construction industry, with 
some economic activity in manufacturing and professional services. In wind and solar 
power generation, the largest proportion of new jobs created will be in manufacturing, 
with construction second. Wind and solar also draw heavily on independent professionals, 
including research and development personnel. 

Hie overall point is that for a clean-energy investment program to provide a range of new 
employment opportunities comparable to what is made available through the oil iudustry, 
it will be necessary to promote the full array of clean-energy initiatives. The range of job 
opportunities available within the oil industry cannot be duplicated by any single clean- 
energy activity alone. 


Employment effects of $150 billion a year clean-energy investments 

To consider how a clean-energy program can create major economy-wide impacts, we 
have to consider the issue within the context of the $150 billion in new dean-energy 
investments that we have discussed above. As we have seen above, this level of clean- 
energy investments can be achieved through the combination of spending programs, 
subsidies, and regulations included in the ARRA and ACESA, along with continued 
advances in clean-energy technologies and a corresponding expansion of private 
markets and business investment opportunities. 

As we see in Table 8, an annual $ ISO billion clean-energy investment level would generate 
a total of about 2.5 million jobs. By contrast, spending the same $150 billion within the 
fossil-fuel industry would produce about 800,000 jobs. This is a difference of roughly 1 .7 
million jobs. In Appendix 2, we break out these economy-wide estimates for net employ- 
ment expansion through clean-energy investments on a state-by-state basis. 

It is not likely that the funds to finance $150 billion in clean-energy investments would all 
come out of equivalent spending reductions on fossil fuels. Nevertheless, we emphasize a 
crucial point by comparing the expansion in employment through $ 150 billion in clean- 
energy investment spending relative to an equivalent decline in fossil fuel spending— 
clean-energy investments will generate a large net e.xpansion in employment even after 
allowing for a maximum transfer of funds out of fossil fuel spending. 


33 Political Economy Research Institute • Center for American Progress | The Economic Benefits c? investing in Clean Energy 



331 


TABLE B 

Impact of $150 billion in dean-energy investments on U.S. labor market 


A) Overall employment expansion through $150 billion shift from fossil fuels to clean energy 
1! Job creation through $150 billion spending on clean energy. 

2) Job creation through $ 1 50 billion spending on fossil fuels. 

3) Net job creation through shift to dean energy (row 1-2). 

B) Impact of dean energy job expansion on 2008 U.S. labor market 

1) Overall labor force. 

2) Total employed before clean-energy investments. 

3) Total unemployed before dean-energy investments. 

4} Unemployment rate before clean-energy investments {= rows 3/1). 

5) Impact on total employment of shift from fossil fuels to dean energy. 

6) Impact on unemployment rate of shift from fossil fuels to dean energy (= rows (3-5)/1 )). 

Source US Bureau of labor Statistics and isaw AN. 


2.5 million jobs 
795,000 jobs 
1 .7 million jobs 

154.3 million 

145.4 million 
8.9 million 

S.8% (=8.9 million/1 54.3 million) 

Employment rises by 1.7 million jobs: 1.2% increase to 147.1miliion 
Unemployment falls from 5.8% to 4.7% (=7.2 million/154.3 million) 


In the lower panel of Table 8, we then consider what the impact would have been on the 
2008 U.S. labor market if there had been a net increase in employment of 1.7 million jobs. 
We know that, in reality, conditions in the labor market do not remain static, and that 
we are not describing what is actually likely to happen when we consider an immediate 
employment expansion. We present these data simply to provide a broad reference for 
gauging the impact of a net clean-energy investment transition— including reductions in 
fossil fuel spending — at the rate of about $150 billion per year. 

Over the full year of 2008, there were 14S.4 million people employed and 8.9 million 
unemployed, producing an unemployment rate for the year of 5.8 percent. A net increase 
of 1.7 million new jobs would therefore lower the unemployment rate to 4.7 percent. 

Tilts greater than one percentage-point reduction in the country’s unemployment rate 
would generate a rise in wages across the board — particularly for low-income work- 
ers. According to the body of research surveyed by Timothy Bartik of the W.E. Upjohn 
Institute, a one percentage-point fall in the unemployment rate will in turn lead to a rise in 
average earnings of about two percent. 21 Bartik notes that this positive wage effect is likely 
to be somewhat stronger at the lower end of the labor market. This is probably because, 
other than the foiling unemployment rate itself, those at the low end of the labor market 
are not likely to have other tools to help them raise their bargaining power. 22 


More jobs through low productivity, protectionism, and bad pay? 

Some critics of our previous work comparing job growth in clean-energy industries and 
fossil fuel industries acknowledge — at least implicitly — that the clcan-energy investments 
can be a positive source of job creation. 23 But they claim that the job expansion comes at 
a stiff price since it occurs through promoting low productivity, protectionism, and low 
wages. But, as we discuss below, these claims are wrong. 


b 0&W* Energy 


34 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing it 



332 


Low productivity is not the resuit of dean-energy investments 

Lets begin with the critics’ own framework for thinking about labor productivity, which 
is total output per worker. From this perspective, the matter is easy to settle, virtually as 
a matter of definition. By definition, if we increase labor intensity through clean-energy 
investments — if we generate about 17 jobs per Si million through clean-energy invest- 
ments versus about five jobs through fossil fuel spending — then we reduce labor produc- 
tivity in the energy sector through shifting spending toward dean energy. 

Yet this perspective ignores two crucial and widely understood considerations. First, by 
raising overall employment, dean-energy investments provide new opportunities to previ- 
ously unemployed workers. This raises the productivity level of millions of workers from 
zero to a positive number. Any economy-wide measure oflabor productivity has to take 
account of this effect. Similarly, clean-energy investments create new opportunities for 
underemployed workers — thereby raising their productivity from a lower to a higher level. 

Second, given the global dimate crisis, we need to begin incorporating environmental effects 
into the measurement of output and productivity. That is, spending on high-carbon fuels 
creates the output "good" of electrical power. But it also creates the output “bad” of pollu- 
tion and greenhouse gas emissions. This point has long been recognized in discussions of 
the environmental costs of economic growth, and is included in virtually every introductory 
economics textbook. Thus, with every unit of energy generated by clean-energy investments 
as opposed to conventional fossil fuels, the net increase in output is greater to the extent that 
we are not producing the “bad" of pollution and greenhouse gas emissions. 

This is why dean-energy investments will raise economy-wide labor productivity substan- 
tially through two channels; 

♦ By expanding total employment per dollar of expenditure in the economy, it provides 
millions of people with new opportunities to become productive workers. 

• By generating energy from dean sources, it increases the level of "goods" we produce 
and correspondingly reduces our production of “bads.” 

The critics’ contention that clean-energy investments result in low productivity growth 
ignores this crucial set of considerations. 

Clean-energy investments are not protectionist 

The relatively high level of domestic content in dean- energy products and services 
is — along with relatively high labor intensity — a major factor generating the higher 
level of job creation relative to fossil fuels for a given level of spending. Yet it is crucial to 
recognize that the high domestic content for clean-energy products and services occurs 


35 Political Economy Research Institute • Center for American Progress | 7 he Economic Benefits of investing ir Clean inerqy 



333 


TABLE 9 

Domestic content for alternative energy sources and energy-efficiency investments 


Energy source 

Domestic content as share of total indus- 
try output (in percentages) 

Domestic content relative to oil 
(percentage-point difference) 

Fossil fuels 

Oil and natural gas 

82.9 


Coal 

933 

+10.6 

Conservation 

Building retrofitting 

973 

+14.4 

Mass transit/rail 

96.7 

+133 

Smart grid 

84.1 

+U 

Renewables 

Wind 

87.8 

+ 4,9 

Solar 

84.7 

+1.8 

Biomass 

93.8 

+10.9 


through the specific characteristics of the alternative investment activities spurred by 
clean-energy investments and will occur independent of any forma! legal mandates 
regarding domestic content. 

This becomes dear by considering the relative extent of economic activity provided by 
domestic sources for each of our specific energy sources. As Table 9 shows, there are major 
differences by energy sector in terms of their degree of domestic content. Oil and gas have 
the lowest relative domestic content, at around 83 percent of total value generated in pro- 
ducing this energy type. Hie domestic content of crude oil production, at about 50 per- 
cent of total crude oil sold in the United States, is much lower than for all other subsectors 
within the oil industry. 14 These other subsectors include the full range of administration, 
transportation, and marketing of crude and refined oil as well as natural gas — all activities 
that would be readily transferrable into a growing clean-encrgy sector. 

The domestic content of coal production, at 94 percent, is significantly higher than the 
overall level for the oil industry. The three renewable energy sources operate with levels 
of domestic content roughly in line with the oil and coal sectors, with solar at 85 percent, 
wind at 88 percent, and biomass at 94 percent. 25 The smart grid is also in the same range, 
at around 84 percent. These are all areas where innovation in manufacturing clean-energy 
products and services will be central to raising domestic content. 

The significant difference in domestic content occurs with retrofits, mass transit, and 
freight rail. In these cases, the level of domestic content is around 97 percent. For the most 
part this result is because these energy-efficiency investments are bound to specific loca- 


36 Political Economy Research Institute • Center for American Progress | ? he Economic 8ene&» of investing »n 


Cjortfi Energy 



334 


tions. That is, retrofitting a home in Philadelphia can only be done in Philadelphia, and 
upgrading the Los Angeles electrical grid system will entail large-scale construction activ- 
ity in Los Angeles. This is true even though some ofthe supplies for both the Philadelphia 
and Los Angeles projects could be imported. The point is that most of the spending on 
both projects will be on the local construction work itself, not the purchase of supplies. 

By contrast, the more an energy sector is linked to manufacturing and extractive activity, 
the more it naturally becomes exposed to import competition. The United States is cer- 
tainly capable of expanding its manufacturing capacity in areas such as wind turbines and 
solar panels. But unlike the retrofit case, where the bulk of the work is construction and 
that construction work must be performed on-site, there is no reason why a wind turbine 
needs to be manufactured within the United States, 


Bad jobs are not the result of clean-energy investments 

Hie single most important point to stress in evaluating the employment effects of clean- 
energy versus fossil fuel investments is that dean-energy spending creates far more jobs 
across all categories than spending on fossil fuels. We can see this clearly by considering 
the profile of jobs created according to the range of credential levels in clean-energy jobs 
versus those in the fossil fuel sectors. This discussion is based on a companion study we 
have conducted under commission with the Natural Resources Defense Council and 
Green For All, "Green Prosperity: How Clean-Energy Policies Can Fight Poverty and 
Raise Living Standards in the United States.” 16 A fuller treatment on this and related ques- 
tions is presented in this NRDC/Green For All study on page 12. 

Working from that study, we provide evidence on this type of job breakdown in Table 10, 
where we sort the total number of jobs generated by $1 million in spending according to 
three job credential categories: 

• High-credcntiaied jobs requiring at least a bachelor’s degree and paying on average 
$24.50 an hour. 

• Mid-credentialed jobs requiring some college but not a B.A. and paying on average 
$14.60 per hour. 

• Low-credcntialed jobs requiring a high school degree or less and paying on average 
$12.00 per hour. 

We show these breakdowns both for clean-energy investments and fossil fuel invest- 
ments and show the difference between the two based on all three of these categories. 
We also include as our final category the low-credentialed jobs that ofTer decent oppor- 
tunities for advancement and higher wages over lime. These are jobs in construction, 
manufacturing, and transportation. 


37 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in Clean Energy 



335 


TABLE tO 

Breakdown of job creation through green investments versus fossil fuels by formal credential levels 

Based on St million of spending 



1) Green investments 

2} Fossil fuels 

3) Difference in job creation 
<= column 1-2) 

Total job creation 

16.7 

S3 

11.4 

High-credentialed jobs 

3.9 

(23.3% of green investment jobs) 

1.5 

(28.3% of fossil fuel jobs) 


• B.A. or above 
■ $24,50 average wage 

2.4 

Mid-credentialed jobs 


1j6 

(30.2% of fossil fuel jobs) 


• Some college but not B,A. 

* $14,60 average wage 

(28.7% of green investment jobs) 

32 

Low-credentialed jobs 


22 

(41.5% of fossil fuel jobs! 


* High school degree or less 

• $ 12.00 average wage 

(47.9% of green investment jobs 

5.8 

Note: Low-credentlaled jobs 
with decent earnings potential 
• $15.00 average wage 

4.8 

(28.7% of green investment jobs) 

0.7 

(132% of fossil fuel jobs) 

4.1 


Note: wage is ihe median wags la all workers across ail industries within sach of the credential categories listed above. 

Source- 2008 Current Popuiairon Survey, IMPLAN. 


To begin with/we can see in Table 10 that the net job creation is substantially higher with 
clean-energy investments than conventional fossil fuels across all three credential catego- 
ries. This is true even while the proportions of jobs created in the different categories differ. 
As a case in point, about 23 percent of the total clean-energy jobs created by investments 
in this sector are high credentialed compared to 28 percent in fossil fuel sectors, but clcan- 
energy investments create 2.5 times more high-credentialed jobs. 

Clean-energy investments also create three times more mid-credentialed jobs, but again the 
proportion of mid-credentialed jobs for fossil fuel spending, at 30.2 percent, is higher than 
with dean-energy investments. The most substantial difference is with low-credentialed jobs. 
Clean-energy investments create 7.7 jobs per $1 million in spending versus only 2.2 jobs per 
$ l million with fossil fuels. This is a difference of5.5 jobs for low-credentialed workers. 

What’s more, these more numerous low-credentialed jobs resulting from dean-energy 
investments by and large lead to greater possibilities for advancement. In particular, 
industries in which low-income workers are better able to achieve decent earnings growth 
include construction first of all, but also durable goods manufacturing, employment 
services (temporary employment agencies), health services, public administration, social 
services, transportation and utilities, and wholesale trade. Workers employed in industries 
such as apparel and textile manufacturing, hotels, personal services (dry cleaning service), 
and restaurants and bars have far less opportunity to improve their earnings over time. 27 


38 Political Economy Research Institute • Center for American Progress I T he Economic Benefits • •• '.r- r.i m «■> - !•.:.» ' 



336 


What about job advancement opportunities in fossil fuel industries? In the final row 
of Table 10 we provide data comparing the clean-energy and fossil fuel investments 
in terms of the numbers of low-credentialed jobs they create with decent longer-term 
employment opportunities. The difference is particularly sharp. Clean-energy invest- 
ments create 4.8 jobs per $1 million in spending while fossil fuel investments produce 
only 0.7 jobs. This is in the job category that is likely to be most crucial for generating 
decent new employment opportunities for low-income people through clean-energy 
investments under the economic stimulus program and American Clean Energy and 
Security Act now before Congress. 

The overall message is that clean-energy investments offer a more favorable result for 
working people in the United States according to any criteria. There are more jobs created 
across the board — twice as many high-paying jobs and nearly four times more low-creden- 
tialed and low-paying jobs. 


39 Political Economy Research Institute • Center for American Progress | The Economic Benefits of Investing in Clean Energy 



337 


Forecasting the impact of a 
carbon cap on economic growth 


The impact of the environmental regulations in ACESA, in particular the new cap-and- 
trade system, will produce higher prices over time for anyone using oil, coal, and natural 
gas. How much higher and how fast these prices will rise is uncertain. 

Nor can we know in advance how much any increases in fossil fuel prices will affect the 
economy's overall performance over time. Offsetting savings from lower-cost, clean- 
energy and efficiency measures will, at worst, take much of the sting out of the price 
increases and at best reduce overall costs. Furthermore, increased U.S. competitiveness in 
growing clean-energy industries as conventional fossil fuels become less important will 
also improve U.S. economic conditions. 

Taking all of these and related considerations into account, it is crucial to try to reach an 
overall assessment as to how the rise in fossil fuel prices will affect the economy’s growth 
trajectory. This is true even though — as discussed above — the standard long-term growth 
forecasting models are fraught with serious pitfalls. It is nevertheless important to try to 
extract as much useful information as possible from these models. 

The basic question that these models attempt to answer is: how much would a given energy 
price increase affect GDP growth? All the forecasts agree that this first depends on how large 
the price increases will be. It then also depends on the “elasticities” — how much the demand 
for a given source of energy would fall as the price of that energy source rises. For example, 
how much purchasing gasoline at the pump would fall when the price of gasoline rises. 

The forecasting models that are calibrated to the Department of Energy's most recent 
(2009) Annual Energy Outlook predict that price increases that would be associated with 
a carbon cap such as that proposed within the ACESA will range from roughly 10 percent 
for gasoline to 20 percent for electricity and 29 percent for natural gas. 

The Department of Energy model, however, also allows for increases in energy efficiency 
as well as rising consumption of clean-energy sources in response to the rise of fossil fuel 
prices. So even if gasoline prices are assumed to rise by 10 percent in a forecasting model, 
the amount of money people will spend on gasoline will not also rise by 10 percent but by 
something less. This is partly because people will respond to the 10-percent price increase by 
conserving on energy or shifting to clean-energy sources, where prices will tend to be falling 
due to technological advances. With all this in mind, lets examine several different forecasts. 


40 Political Economy Research Institute • Center for American Progress j : •hh-.m- i -• s ' 1 ' 



338 


Long-run GDP growth forecasts 

The general approach with these exercises is to generate two long-term growth projections. 
The first is a baseline case in which the economy is operating without a carbon cap over 
the time period in question. The second is a projection in which a carbon cap-and-trade 
system has been in operation during the relevant time period. 

Most of these forecasts are responding to the carbon cap proposal debated last year in 
Congress, which was the so-called Lieberman-Warner bill, named after its co-sponsors 
Sens. Joseph Lieberman (l-CT) and (the now retired) John Warner (R-VA). Because 
the cap-and-trade component of ACESA is similar to that of Lieberman-Warner, these 
previous forecasting exercises remain useful in assessing the effects of this more recent 
cap-and-trade proposal. 

In addition, the Environmental Protection Agency recently produced two long-term 
forecasts of the effects on economic growth of the ACESA carbon cap proposal. We 
compare these most recent forecasts with those generated in response to Lieberman- 
Warner in Table 1 1 . 2> 

In considering first the forecasts of Lieberman-Warner in the upper panel of Table 1 1, 
one central finding stands out above all: According to all the forecasts — including the 
worst-case scenario developed by the most pessimistic forecasters, the American Council 


TABLE 11 

Comparison of alternative U.S. GDP growth forecasts under baseline scenario and with cap and trade 

figures are average annual growth rate forecasts for specified time periods 



1) Baseline GDP forecast 

2) GDP forecast under Lieberman- 
Warner cap and trade 

3) Difference between baseline and 
cap-and-trade growth forecasts 
(columns 1-2) 

A) Forecasts based on Lieberman-Warner cap and trade 

MIT (200S to 2050) 

2.94% 

2.93% 

0.01% 

Energy Information Administration (2005 to 20301 

2.47% 

2.45% 

0.02% 

Clean Air Task Force (2005 to 2030) 

2.89% 

2.86% 

0.03% 

Environmental Protection Agency (2005 to 2050) 

2.78% 

2.72% 

0.06% 

ACCF/NAM— “High Cost Case" (2007 to 2030) 

2.56% 

2.45% 

0.11% 

8) Forecasts based on ACESA cap-and-trade 

EPA-1 (ADAGE model— 2015-50) 

2.41% 

2.36% 

0.05% 

EPA-2 (IGEM model-201 S-S0) 

2.35% 

2.30% 

2.0$% 


Rttoffttes i- . -.ivjtt i'C m 4i if -ici cm C«ot») Clmate C range "U'S^hn (torn MoafSnq Ansywi o* me Uetemw* w*ne< Secuniy *o(S?Wl (May J008) ■>" hno /A*wn» c I *>j!t 

e-: rot c-i oart’. «rl C-v. xocmenui Pmecuon Agency fAt Aww, An&finoftts 0>«uivon Oofr (Aom 10 1009i »vaw» .« so» gov/r-«'i««Aa'.5c/occ''0'> : v nch • 

WM-Ana!ysi4.pt)i. 


41 Political Economy Research Institute • Center for American Progress j the Economic Benefit-; of investing >r* dean Energy 



339 


on Capital Formation/Nationai Association of Manufacturers — the impact of a cap-and- 
trade system on U.S. GDP growth will be negligible. According to most forecasts, it will be 
almost indiscernible. 

Hie differences in the forecasts of long-term average annual GDP growth range between 
0.01 percent using the model developed by the Massachusetts Institute of Technology and 
0.1 1 percent using the ACCF/NAM model. Even with the most pessimistic ACCF/NAM 
model, the impact of the carbon cap on economic growth amounts to a difference in 
average growth of between 2.6 percent per year when no carbon cap is in place versus 2.5 
percent with a carbon cap in operation. Even assuming this most severe negative effect of a 
carbon cap on economic growth, it would still only require, over the course of 23 years, an 
additional 14 months for the U.S. economy to reach the same level of GDP under a carbon 
cap as against the baseline scenario. 

The lower panel of Table 1 1 shows two separate forecasts from EPA based on ACESA 
specifically. The main difference between these forecasts and those for Lieberman-Warner 
is the general shifting downward of growth projections. Thus in the top panel of the table, 
the EPAs own forecasts with reference to the Lieberman-Warner proposal had ranged 
between 2.78 percent average annual growth under their baseline case versus 2.72 percent 
under a carbon cap — a difference of only 0.06 percent in average annual growth. 

EPA’s two forecasts both estimate a significant drop in the baseline growth rate, with the 
two forecasts at 2.35 percent and 2.41 percent. But these two forecasts also show a slightly 
smaller impact of the carbon cap itself relative to the baseline, with the growth decline due 
to the carbon cap now forecasted at 0.05 percent relative to the baseline. 

Overall, then, these most recent EPA forecasts of the ACESA’s impact on economic 
growth affirm the earlier conclusions of the forecasts derived from Lieberman-Warner — 
that a carbon cap will have no significant effect on the U.S. economy’s long-term growth 
trajectory. These forecasts may all be wrong, but it is still notable that this is the overarch- 
ing conclusion that emerges from these modeling exercises, without exception. 

This basic finding is even more notable given that these models all leave out significant 
considerations that would tend to encourage the long-term growth rate to rise. These basic 
considerations include: 

• The positive effects of higher employment. 

* The benefits of a higher level of domestic content and thus a reduced trade deficit. 

♦ The possibilities for major technological breakthroughs. 

• The economic benefits of reducing greenhouse gas emissions. 

Let’s consider in turn each of these possible beneficial results that could derive from a 
Si 50 hillion annual clean-energy investment program. 


42 Political Economy Research Institute • Center for American Progress | 'he Economic Benefits of investin'? m Clean C neruv 



340 


Benefits of higher employment 

The forecasting models we are considering here — like many macroeconomic models 
developed over the past 20 years — assume that the economy is always operating at full 
employment, 29 These models do allow for people to make choices between working and 
leisure activities, but ail within the framework of a full- employment economy. 

This means that if people are out of work, it is because they have voluntarily chosen leisure 
over having a job. Thus, by assumption within these models, no benefits can result from an 
expansion of employment opportunities — no matter what is the source of this employ- 
ment expansion. This is because, according to these models, everyone who wants lobe 
employed is in fact always employed. 

In contrast, we have shown that clean-energy investments will generate an expansion of 
job opportunities through direct plus indirect employment-creation channels. Because 
we do not assume that the economy operates at full employment, this expansion of job 
opportunities through the clean-energy investment agenda will produce a net increase of 
employment throughout the economy. More people will have jobs as well as additional 
money to spend. 

When these newly employed workers increase their level of spending, this in turn creates 
more jobs through the induced-employment elfect. The consequent fall in the unemploy- 
ment rate should, in turn, encourage rising wages throughout the economy, which should 
expand overall market demand in the economy still further. Through this combination of 
channels that lead to lower unemployment, clean-energy investments will be supportive 
of a higher overall rate of economic growth. 


Clean-energv investment's and the trade deficit 

The persistent gap between the total amount of imports wc purchase and the exports we 
sell abroad now amounts to roughly 6 percent of U.S. GDP. This trade deficit is being 
financed by foreigners piling up their holdings of dollar assets. This in turn has become a 
major factor contributing to the instability of U.S. and global financial markets. 

Clean-energy investments will almost certainly advance in conjunction with a decline in 
fossil fuel consumption, which in turn will lead to a reduction in the huge levels of spend- 
ing the United States now devotes to oil imports. As of 2007, the last year before the onset 
of the financial crisis and recession, oil imports amounted to about $300 billioo per year, 
or roughly half of total U.S. spending on fossil fuels. This level of spending on oil imports 
also accounted for 36 percent of the total U.S. trade deficit of $819 billion as of 2007. 
Overall, then, the net effects of clean-energy investments on the U.S. balance of trade will 
certainly be favorable. How soon, and to what degree, these positive effects on the U.S. 


43 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in Clean Enetqy 



341 


trade balance will emerge will depend on how quickly clean-energy elements of the eco- 
nomic stimulus package and the entirety of ACESA encourage clean-energy development 
and displace high-carbon fuels as an energy source. 

Reducing the U.S. trade deficit through cutting oil imports means, by definition, a higher 
proportion of spending by U.S, households, businesses, and governments will happen 
within the domestic US. economy. This promotes faster U.S. GDP growth. Moreover, 
reducing the trade deficit will, in turn, cnntribute toward a more stable value of the dollar 
in international currency markets, and thereby facilitate the management of U.S. monetary 
policy. This should also contribute toward a faster rate of U.S. GDP growth. To achieve 
these benefits of a smaller trade deficit, moreover, will not require that the deficit be 
dosed entirely and right away. The fact that the deficit is diminishing steadily over time 
will itself generate incremental benefits to the U.S. ecooomy. 

Furthermore, the introduction of ever-increasing quantities of clean energy and energy 
efficiency helps lower costs and decrease price volatility in the economy overall by diversi- 
fying the U.S. energy mix and redudng our susceptibility to volatile price fluctuations for 
primary fossil fuel commodities. 


Incorporating the effects of technological change 

EPA and related models build in assumptions as to how technological changes will affect 
energy prices over time. It is impossible to know how quickly the prices of, say, cellulosic 
biomass, wind, and solar energy will decline with time as technologies advance. But if 
the United States continues to increase its commitment to advancing these technologies 
through measures contained in ARRA and ACESA, then the opportunities will increase 
and renewable energy prices could fall faster than these models are forecasting. 

Once government policies help create a supportive environment for introducing and 
commercializing new renewable energy technologies, this should accelerate the invest- 
ment market for these clean sources of energy. An expanding market also then will raise 
the likelihood for larger jumps in technological change beyond the incremental pace of 
improvement built into standard long-term GDP forecasting models. 

The potential for underestimating the effects of technological change is increased further 
because these models assume that households and businesses operate with full knowledge 
of how the economy will operate over time; the models assume "perfect foresight" on 
the part of households and businesses. Indeed, the models assume not only that we can 
accurately know the trajectory of technological change io the energy industry but also 
how households and businesses will react to these changes. 


44 Political Economy Research institute • Center for American Progress j ~!‘-e Economic Benefits o' i-'ws! t • k\:o i-mruy 



342 


These models therefore leave aside by assumption the real possibility that energy technologies 
will improve quickly and produce a stronger positive expansion in employment than house- 
holds or businesses operating in the models with “perfect foresight” could have anticipated. 

Overall, then, we again see how changes in the policy environment as well as a rising level 
of public commitment to building a dean-energy economy can themselves generate posi- 
tive pressures for an accelerated rate of technological improvements. These improvements, 
in turn, could contribute to a faster rate of GDP growth than the forecasting models are 
anticipating. The pace at which businesses and households invest in these efficiencies will 
depend on the success of ARRA and ACESA. 


Benefits of lower carbon emissions 

The main purpose of the forecasting models we have discussed above is to estimate the 
future costs of a carbon cap. But these models do not attempt to estimate any potential 
economic benefits accruing from the carbon cap or related policy interventions, in fact, it 
is difficult to quantify the economic benefits of insuring against climate change, even while 
wc know that such benefits are potentially enormous. 

Most climate scientists hold that global warming is contributing throughout the world 
to extreme weather patterns, a rising sea level, and significant shifts in many ecosystems. 
These patterns will intensify as long as we fail to limit carbon emissions. 

Disruptions of normal economic activities will increase correspondingly. Economic 
welfare will decline as a result. This is certainly true in terms of an increase in environmen- 
tal "bads,” many of which — such as a rising sea level and destroying natural habitats for 
species — are not captured through traditional GDP statistics. But some of these negative 
effects are incorporated in GDP. One case in point is that costs of hurricane damages are 
included as part of GDP. Also included in GDP will be the costs that are already emerging 
(and will worsen over time) of managing water systems in arid Western states as droughts 
become more frequent and severe. 59 

Of course, the most important consideration here is to recognize the overall welfare 
costs, and especially the real dangers of an irreversible environmental crisis that could 
result throngh allowing carbon emissions to cuntinue unchecked. These considerations 
transcend the issue of whether such costs and risks are captured within our conven- 
tional GDP statistics. 

Still, considering models that attempt only to forecast future GDP, leaving broader 
welfare considerations outside the model, the benefits of controlling carbon emissions 
will be measureable and significant. Neglecting all such benefits means that future GDP 
forecasts — the baseline forecasts as well as those that allow for a carbon cap mandate — 
are likely to be understated. 


45 Political Economy Research Institute • Center for American Progress | The Economic Benefits of investing in Oeqn Energy 



343 


Conclusion 


The United States needs to promote an aggressive policy agenda now to defeat global 
warming. This fact is now widely if not universally recognized. The overarching challenge 
before us is therefore to determine a policy path that is effective in building a clean-energy 
economy as rapidly as possible and in promoting widespread employment opportunities 
and broadly shared well-being. The current severe recession has only intensified the need 
to pursue such a unified program that can both promote job creation and build a clean- 
energy economy. 

The recently enacted American Recovery and Reinvestment Act and the proposed 
American Clean Energy and Security Act that Congress is now considering are both 
federal policy initiatives aimed at creating a clean-energy foundation for the U.S. economy. 
The two measures are distinct. The ARRA is a $787 billion spending program designed 
to counteract the recession, which includes clean-energy components as one tool among 
several others to stimulate job creation and economic growth. These components include 
both direct federal spending provisions as well as subsidies for private investors. 

In contrast, ACESA will operate primarily by establishing regulations and incentives for 
private businesses to encourage energy efficiency and investments in renewable energy, and 
correspondingly discourage continued reliance on high-carbon energy sources. Among its 
main provisions are a carbon cap-and-trade program that would be phased in through 20S0, 
and a renewable energy electricity standard that would be phased in through 2020. 

The specific features of ARRA and ACESA complement each other. In this paper we have 
demonstrated how the two measures work in combination to advance clean-energy invest- 
ments and the transition to a clean-energy economy. Specifically, we examined the effect 
these two measures are likely to have on job creation and economic growth. We conclude 
that these two measures operating effectively as a complementary set of policy initiatives, 
in conjunction with related initiatives both at the state and local government level and 
especially by private investors, could produce over the next decade about $150 billion a 
year in clean-energy investments that also expand job opportunities. The net expansion in 
employment through this combination of initiatives could be about 1.7 million jobs. 

This $150 billion a year includes public spending and private investments. Within the 
private sector, it would include projects that are both supported by government subsidies 


46 Political Economy Research institute - Center for American Progress | •; • \ muc Reno'e-. c/h-.v: si >v :V;»i ^;. (v 



344 


of some sort as well as unsubsidized investments. We anticipate that the largest share of an 
overall $150 billion annual spending level would be unsubsidized private investments that 
are nevertheless encouraged by the expansion of markets aud opportunities encouraged 
by ARRA and ACESA. 

Our central finding on employment growth is that a combination of clean-energy invest- 
ments — including building retrofits, public transportation, and constructing a smart grid, 
as well as promoting renewable energy sources such as wind, solar, and biomass power — 
will generate roughly three times more jobs than an equivalent amount of money spent 
on conventional fossil fuels. So if the United States proceeds with combined public- and 
private-sector investments in clean energy amounting to $ 150 billion a year, this would 
generate about 2.5 million jobs. In contrast, spending the same $150 billion within the 
fossil fuel sector generates about 800,000 jobs. Therefore, the net impact — jobs gained 
through expauding clean-energy investments by $150 billion minus jobs lost through 
reducing spending on fossil fuels by the same amount — would be a net gain of 1.7 million 
new jobs within the U.S. economy. 

This expansion of job opportunities would occur strictly as a result of the shift in spend- 
ing of a given $150 billion in favor of clean energy and away from fossil fuels. It will not 
be necessary for U.S. GDP to grow more quickly in order for these positive job effects to 
emerge through a clean-energy investment agenda. 

Our overall conclusions are therefore that the clean-energy components of ARRA and 
ACESA will have significant economic benefits aside from the contributions they will 
make to reducing carbon emissions and combating global warming. The most important 
and most clearly established economic benefit is that dean-energy investments will be a 
substantial source of new employment opportunities throughout the United States. 

Forecasting the impact of these measures on long-run economic growth is fraught with 
difficulties. But it is still useful to highlight the fact that all the models that attempt such 
forecasts find that any possible negative impacts of a carbon cap on economic growth will 
be minimal. It is also important to recognize that these models reach this common conclu- 
sion even though they do not take account of several channels through which the project 
of building a clean-energy economy will promote a wide range of new job opportunities 
and the broader expansion of well-being in the United States. 


47 Political Economy Research Institute ■ Center for American Progress | The Economic Benefits of Investing in Clean Energy 



345 


Appendix 1: Technical methods 


Environmental investment in the ARRA 


Estimating the overall level of environmental spending 

The American Recovery and Reinvestment Act of 2009 contains funding for a number of 
environmental programs through various departments and agencies within the federal 
government. Estimates of dean-energy spending in the ARRA vary widely— depending on 
whether only funding through the Department of Energy is considered or whether a broader 
approach is taken. We have pursued the latter. 


Our estimate of approximately Si 00 billion in environmental spending is derived by identify- 
ing and summing all of the programs in the ARRA which fall under the DOE. as well as any 
program in other departments and agencies (such as the Department of Transportation, the 
Environmental Protection Agency, the Department of Housing, the Treasury Department, 
etc.) that contains funding for energy efficiency, renewable energy, public transit, high- 
speed rail, and environmental management. Specifically, in addition to the DOF programs, 
our $100 billion estimate of environmental investments contains the following programs: 


Government: 

Outdoors: 

Military: 

Veterans: 

Transportation: 

Housing: 

Tax provisions: 


Building retrofits and efficient fleet procurement 
Conservation, national parks, environmental cle3n-up and 
wildfire management 
Defense energy conservation projects 
Energy efficiency in buildings 

Amtrak, high speed rail, and public transit improvements 

Energy efficiency on Indian lands, and energy efficiency and renewable 

energy for low-income housing 

All tax incentives related to energy efficiency and renewable energy 


Financial mechanisms for allocating federal funds 

The roughly $100 billion of environment investments identified above are allocated accord- 
ing to various financial mechanisms. These include direct spending by the federal govern- 
ment (for efficient fleet procurement, for example), as well as grants, loan guarantees, bonds, 


48 Political Economy Research Institute • Center for American Progress | l hr i rmnn.i; Bench's of ir-vosi in Clean i'onrgy 



346 


and tax incentives. Each of these mechanisms, in turn, targets certain populations {local 
governments, private investors) and will induce additional spending by those populations. 

In order to obtain a rough estimate of the level of funds likely to be spent by these entities 
in addition to the federal funds, we first identified the funding mechanism within the text of 
the ARRA. We then used a variety of websites {see below) to ascertain whether there were 
matching requirements or estimates of leveraged funds through the ARRA programs. For 
example, residential renewable energy property is eligible for a 30 percent tax credit. Thus 
forihe total cost of the project, the federal government will pay 30 percent and the private 
investor will pay 70 percent, or 2.33 times the value of the federal funds. Therefore this credit, 
which amounts to S268 million of federal funding, will raise an additional $625 million in 
private funding for a total of $893 million economy-wide. 

in order to ascertain the types of programs and the level of matching required, we consulted 
documents provided to us by the Department of Energy as well as the following sites; 

www.grants.gov Edocket.access.gpo.gov 
www.dsireusa.org www.epa.gov 
www.staterecovery.org www.fra.dot.gov 
www.treasury.gov/recovery www.recovery.gov 
www.irs.gov www.cbo.gov 
www.fms.treas.gov www.ustreas.gov/recovery 
www.dot.gov/recovery 


Assessment of new investment in electricity generation capacity to meet the 
revised 15-percent renewable energy standard in the ACESA 

We base our analysis on two recent publications from the Energy Information Administration 
(U.S. Department of Energy): Annual Energy Outlook 2009 (AEO 2009) and Assumptions to the 
Annual Energy Outlook 2009. At the time of this writing, the ACESA would require that 15 
percent of electricity generation would come from renewable sources by 2020. We use the 
projections of future electricity generation contained in AEO 2009, based on the Department 
of Energy's National Energy Modeling System, or NEMS. as the basis for our estimates of the 
dollar value of investments needed to comply with these standards. 

According to the AEO 2009, electricity generation will total 4,618 billion kilowatt hours, or 
kwhs in 2020. If electricity generation from renewable sources were to meet the ACESA stan- 
dard in 2020. 692 kwhs would have to come from renewable sources. We need to convert 
this amount of electricity generation into a measurement of capacity needed. Based on the 
estimates in AEO 2009, we estimate that on average across renewable sources of electric- 
ity, 0.2 gigawatts in capacity {net summer capacity) is associated with every 1 billion kwhs 
in generation. We use this ratio to calculate the shortfall in renewable capacity. Using this 


49 Political Economy Research Institute ■ Center for American Progress j The Economic Benefits of investing in Clean Energy 



347 


assumption, about 1 53.8 gigawatts in renewable capacity would be needed to generate 
692 kwhs of electricity. According to AEO 2009, in 2007 renewable generation capacity was 
1 00.8 gigawatts, Therefore, we would need an additional 53 gigawatts in renewable capacity 
to meet the 1 5-percent standard by 2020. 

The publication Assumptions to the Annual Energy Outlook 2009 provides estimates of the 
overnight capital cost of different sources of electricity generation. Using the actual com- 
position of renewable energy from various sources contained in the AEO 2009, we calculate 
that a weighted average of the cost of capital would be $2,750 in 2007 dollars per kilowatt 
of capacity. For the purposes of our estimations we round this up to $2,800 per kilowatt of 
capacity. This means that the total additional investment needed to reach the 15-percent 
standard would be about $148 billion by 2020. 

If the U.S. economy were able to achieve a goal of 20 percent renewable electricity by 
2020, we estimate that the total capacity needed at that time would be 205 gigawatts — 
or an increase of 104.2 gigawatts over the 2007 level. This would require about $292 bil- 
lion in investment. 


Employment estimates 


employment multipliers 

Data and methodology The employment estimates in this report are derived from an 
input-output model. The Input-output model allows us to observe relationships between 
different industries in the production of goods and services. We can also observe relation- 
ships between consumers of goods and services, including households and governments, 
and the various producing industries. For our purposes specifically, the input-output model- 
ing approach enables us to estimate the effects on employment resulting from an increase 
in final demand for the products of a given industry. For example, we can estimate the 
number of jobs directly created in the construction industry for each $ 1 million of spending 
on construction. We can also estimate the jobs that are indirectly created in other industries 
through the $ 1 million in spending on construction— industries such as lumber and hard- 
ware, Overall, the input-output model allows us to estimate the economy-wide employment 
results from a given level of spending. 

For this report, we used the IMPLAN 2.0 software and IMPIAN 2007 data set constructed by 
the Minnesota IMPIAN Group, Inc. This data provides 440-industry level detail and is based 
on the Bureau of Economic Analysis input-output tables. 

Using IMPLAN to estimate ditect and indirect effects in energy industries 

To perform the kind of employment analysis featured in this report we needed to match 
the various energy spending categories with the industrial categories in the IMPLAN data 
set in order to calculate employment multipliers. IMPLAN's data is based on the Bureau of 


50 Political Economy Research institute • Center for American Progress | Cu>n.«»k R~;v :V >rv, , :<• loan s v:,r.)v 



348 


Economic Analysis input-output tables. The BEA, in turn, organizes industries according to 
the North American Industrial Classification System, or NAlCS.This system unfortunately 
does not identify energy industries as such. While certain industries such as oil and gas 
extraction or coal mining are identified in the tables, others such as wind and solar are 
not. Furthermore, the oil and gas industry does not consist solely of extraction but also of 
research, manufacturing, and distribution. Therefore for both identified and unidentified 
energy industries we must make certain assumptions in using the input-output tables to 
study output and employment. 

For each energy strategy, we identified the industries most relevant to the strategy and 
assigned weights for the share of that industry within the energy strategy. These weights 
were chosen based on various industry journals and energy reports, as weli as our best judg- 
ment when information was unavailable. So, for example, we defined the coal industry as 
44 percent coal extraction, 8 percent support activities for coal mining, and 48 percent coal 
products manufacturing. In this way we were able to use weighted averages of the figures in 
the output and employment tables to generate estimates of output and employment in the 
coal industry, given a certain level of demand for that industry's product. In order to ensure 
that our employment estimates for each energy strategy were not driven primarily by the 
weights we assigned, we ran the model with various alternative weighting schemes and 
found that the results were in fact quite robust and varied only slightly even when weights 
changed quite drastically. The final weights that we selected for each energy strategy are 
listed at the end of this section. 

In order to be able to compare employment estimates between various energy strategies, 
we needed a common metric to use as a basis for comparison. We chose to compare job 
estimates in relation to a given amount of spending rather than a given amount of energy 
production. So for instance we compare the employment estimates in solar energy ver- 
sus coal by showing how the same level of spending in each category results in a certain 
number of jobs. The alternative, which is to show how many jobs are supported by a given 
level of energy production, would produce inflated estimates in industries with high energy 
costs. If we had used a given level of BTUs as the basis for comparison, then the number of 
jobs needed to produce a given level of BTUs in solar would be very high compared to the 
number of jobs needed to produce that level of energy production through coal. This would 
have simply been due to the fact that the cost per BTU for solar power is still much higher 
than the cost per BTU of coal. Therefore we chose to compare the number of jobs created by 
a given level of spending, which is not sensitive to the current prices of these various energy 
sources and technologies. 


51 Political Economy Research Institute • Centerfor American Progress | The Economic Benefits of Investing ir» Clean Energy 



Biomass 


25 percent 

grain farming 

Solar 


25 percent 

logging 

30 percent 

construction 

25 percent 

other new construction 

17.5 percent 

hardware manufacturing 

12.5 percent 

refining 

17.5 percent 

electrical equipment 

12.5 percent 

scientific R&O 

17.5 percent 

electronic components 



17.5 percent 

scientific and technical services 

Building weatherization 



50 percent 

nonresidential repair construction 

Transit and rail 

50 percent 

residential repair construction 

45 percent 

other construction 



10 percent 

rail transportation 

Coal 


45 percent 

ground passenger transportation 

44 percent 

coal mining 



08 percent 

support activities for coal mining 

Wind 


48 percent 

coal product manufacturing 

26 percent 

construction 



12 percent 

plastic products 

Oil and gas 


1 2 percent 

fabricated metal 

23 percent 

oil and gas extraction 

37 percent 

machinery 

07 percent 

drilling oil and gas wells 

03 percent 

mechanical power transmission equipment 

04 percent 

support activities for oil and gas extraction 

03 percent 

electronic components 

10 percent 

natural gas distribution 

07 percent 

scientific and technical services 

45 percent 

petroleum refineries 



08 percent 

petroleum product manufacturing 

"Green program" 

03 percent 

pipeline transport 

40 percent 

building weatherization 



20 percent 

transit and rail 

Smart grid 


10 percent 

smart grid 

25 percent 

construction 

10 percent 

wind 

25 percent 

machinery 

10 percent 

solar 

25 percent 

electronic equipment 

10 percent 

biomass 

12.5 percent 

electrical power goods 



12.5 percent 

storage batteries 




Induced effect; 

Induced effects refer to the additional employment, output, and value added that is produced 
when the additional employment income generated by an initial demand stimulus - as captured 
by the direct and indirect effects — is spent. The magnitude of the induced effects depends on 
how the additional employment income translates into household expenditures and the size of 
the multiplier effects associated with the increase in household spending. 

Induced effects are often estimated by endogenizing the household sector in the input- 
output model. The assumption is that increases in employee compensation {or value added) 
finance greater household spending, as reflected in the vector of household consumption 


52 Political Economy Research Institute • Center for American Progress | f; omum ■ h- ■■■* L'-emx 



350 


in overall final demand. The endogenous household model often yields very large induced 
effects, in part because the propensity to consume out of employee compensation (or value 
added) implicit in the endogenous household input-output model is large. 

instead of relying on the consumption function that is implicit in the input-output accounts, 
we estimate the relationship between real gross employee compensation and real personal 
consumption expenditures econometrically using a dynamic empirical model. This gives us 
a more accurate sense of how household consumption responds to changes in employee 
compensation. We then integrate this estimated relationship into our basic input-output 
model to calculate induced effects. 

The first step of the process is to estimate the relationship between personal consumption 
expenditures and employee compensation. To do this, we begin with the following dynamic 
empirical model: 

C t = a + p,C H + + P 5 C |} + yE, + p, 

In the above equation, C, represents real personal consumption expenditures in time period “t," 

E represents real employee compensation, and p, is a stochastic error term. We are interested 
in how changes in employee compensation affect changes in personal consumption expendi- 
tures. Therefore, we estimate the model in first differences. First differencing alsn insures that the 
variables are stationary (based on augmented Dickey-Fuller unit root tests).The GDP-deflator 
for personal consumption expenditures is used to transform nominal values into real variables. 
The time series is quarterly, and extends from 1950 to 2007. All data comes from the Bureau of 
Economic Analysis, U.S. Department of Commerce. 

The estimated model is (rounding off the coefficients): 

C, = 7.83 + 0.1 0 C , + 0.20 C l0 + 0.21 C,., + 0.30 E, 

(3.2) (1.7) (3.5) (3.6) (5.9) 

T-values are reported in parentheses. From this model, we can calculate the impact of a 
change In employee compensation on personal consumption expenditures, taking into 
account the dynamic feedback effects captured by the lag endogenous variables: 

1 - =0.6132 

I-(P, + P ? + P,) 1-0.5186 

This implies that a $1 million increase in gross employee compensation will be associated 
with a $613,200 increase in household consumption. 

Next, we need to estimate the feedback effects— that is, the impact of the increase in house- 
hold consumption on employee compensation. Additional household consumption expendi- 
tures will increase the vector of final demand in the input-output model and, through direct 
and indirect employment effects, raise employee compensation. 


53 Political Economy Research Institute * Center for American Progress j The Economic Benefits of Investing in Clean Energy 



351 


Using our input-out mode! and restricting the estimates to direct and indirect effects only, 
we find that a Si increase in household final demand is associated with an increase in 
employee compensation of $0,416.” 

We can now estimate the number of jobs that would be created for each additional $1 million 
in employee compensation generated by the direct and indirect effects of any particular final 
demand stimulus. First, we calculate the total impact on household consumption of a 
$1 increase in employee compensation. This would be given by the following expression: 

Total impact on HH consumption = x + x^y + x'y v + x*y 5 + 

in which Vis the estimated propensity to consume out of additional employee compensa- 
tion {0.6132 according to our estimates described above) and "y“ is the additional employee 
compensation generated by a Si increase in final household demand {0.416 from the basic 
input-output model). We can factor out a single "x" giving us: 

Total impact on HH consumption = x(1 + xy + (xy) ; + (xy) 3 + J 

The expression in the brackets is an infinite series. Since xy<1, we know that the series 
converges to: 

Total impact on HH consumption = x/{l-xy). 

Using our estimates, the total impact on household consumption expenditures of a 
$1 increase in employee compensation is +$0.8232. 

Finally, we use these estimates to calculate a general induced employment multiplier. From 
the basic input-output model, we estimate that a $1 million change in final household 
consumption would create 10.6 additional jobs. However, we are interested in the number 
of jobs that would be generated by an additional $1 million in employee compensation. We 
know that $1 in employee compensation will generate $0.8232 in induced household con- 
sumption. Therefore, $1 million in additional employee compensation generates $823,200 in 

new household expenditures and approximately 8.7 additional jobs (10.6 * 0.8232) when 

all dynamic multiplier effects are taken into account. 

We can apply this general analysis of induced effects to any specific stimulus. All we need 
to know is the direct and indirect effects of the stimulus in terms of employee compensa- 
tion. For each $1 million in additional employee compensation generated, we know that 
8.7 additional jobs would be generated through induced effects. For example, an addi- 
tional $10 million spent on building weatherization generates $5.42 million in additional 
employee compensation through the direct and indirect effects, These direct and indirect 
effects would generate about 127 new jobs. These numbers come directly from the 


54 Political Economy Research Institute * Center for American Progress j The Economic. Benefits of invest; 



352 


basic input-output model. The induced job creation — taking into account all multiplier 
effects — would amount to approximately 47 additional jobs (5.42*8.7) for a total employ- 
ment impact of 174 jobs. 


Characteristics of jobs generated by dean-energy investments 
and fossii fuel investments 

in this report we are concerned not only with the overall level of job creation, but also 
with the types of occupations and the credentials needed by workers in these occupations. 
Our basic strategy for identifying the types of jobs that would be added to the economy 
due to an investment in the dean-energy or fossil fuel sectors (as defined above) involves 
two steps. The first step is to calculate each industry's share of total employment created 
through either an investment in clean energy or fossil fuels. We calculated the percentage 
of new employment generated in each of the 440 sectors in our input-output model. These 
industry shares take into account the direct, indirect, and induced effects as discussed 
above. The second step is to combine this information on the industry composition of new 
employment created by investing in each energy sector — clean energy or fossil fuels — 
with data on workers currently employed in the industries. We use the characteristics of 
these workers to determine the types of occupations (and the credential requirements of 
these occupations) that will add jobs with an investment in each energy sector. Our data on 
current workers comes from the 2008 Current Population Survey, or CPS, maintained by the 
Bureau of Labor Statistics. 

Specifically, we used the industry shares to weight the worker data in the CPS so that the 
industry composition of the workers in the CPS sample matches the industry composition 
of the new jobs that will be added by investing in the energy sector we are analyzing. We 
do this by using the industry shares to adjust the CPS-provided sampling weights. The CPS- 
provided sampling weights weight the survey sample so that it is nationally representative. 
We use the industry shares to adjust these sampling weights so that the sample of work- 
ers in the CPS is representative of the industrial mix of jobs that IMPLAN estimates will be 
produced by new investments in clean energy or fossil fuels. 

In order to create the weights we first aggregated the 440 industry shares to the three-digit 
level NAICS industries (for a total of 69 industries). This allowed us to merge the industry 
share data to the CPS worker data using the most detailed industry variable provided in the 
CPS. So, for example, at the 440 sector level there are seven construction sectors while at the 
three-digit NAICS level there Is one construction industry 

We adjust the CPS-provided sampling weights by multiplying each individual worker's sam- 
pling weight with the following: 


55 Political Economy Research Institute ■ Center for American Progress j The Economic Benefits o? investing in Clean Energy 



353 


x IMPLAN's estimate of the share of new jobs in worker 's industry I 
I (CPS sampling weights of all workers in industry I) 

where 5 is a scalar equal to the number of jobs produced overall by the particular level and 
type of investment being considered, and I represents a particular industrial sector. 

We use these adjusted sampling weights to estimate the proportion of workers in each 
energy sector that has 1 ) a high school degree and no college experience: 2) some college 
but no bachelor's degree; and 3) a bachelor’s degree or more. We then assume that the same 
proportion of jobs in each energy sector requires each level of education credentials. These 
figures are presented in the main text in Table 10. 


56 Political Economy Research Institute • Center for American Progress j 'the Economic Benefit 



354 


Appendix 2: The employment impact 
of clean-energy investments across 
individual states 


We report here a state-by-state breakdown of the overall employment expansion that would 
result through shifting $150 billion in overall spending out of the fossil fuel industry and into 
clean-energy investments. Before reporting the figures themselves, we begin by discussing 
the approach we have taken for allocating both the expansion in dean-energy investments 
in each state and the corresponding decline in fossil fuel spending. Our estimates of the net 
employment effects of the transition to a dean-energy economy are based on the amounts 
by which dean-energy investments increase and fossil fuel spending decreases in each state. 
The employment figures we report in the second part of this appendix are the result of both 
of those calculations. 

As described in the main text, we have derived the $ 1 SO billion level of economy-wide 
dean-energy investment spending based on two criteria: 1 ) our assessment of the com- 
bined impact on the l).S. economy of the American Recovery and Reinvestment Act and the 
set of incentives and regulations included in the American Clean Energy and Security Act, 
now being debated in Congress; and 2) developments that are likely to occur in the private 
clean-energy investment market, driven primarily by advances in dean-energy technologies 
and the maturation of the institutions and linkages serving this market. Of course, these two 
broad sets of factors — the impact of government policies and advances in technologies and 
market practices— are also closely interrelated. 

To proceed with a state -by-state breakdown of this $ 1 50 billion in total dean-energy 
investment spending throughout the U.S. economy, we first need to establish criteria for 
estimating how the funds are likely to be distributed. And based on the worst-case scenario 
assumption that we describe in the main text (page 33} that the total $150 billion in dean- 
energy investments will be matched dollar-for-doliar by declines in fossil fuel spending, we 
also need to establish criteria for distributing the decline in fossil fuel spending across the 
states that will total to $1 50 billion, in fact, we conclude that the same approach is appropri- 
ate for both distributing the gains in dean-energy investments and declines in fossil fuel 
spending. That is, as we explain in detail, we generate both the dean-energy investment 
increases and the fossil fuel spending declines as equally weighted averages of the level of 
GDP and the level of population in each state. 


57 Political Economy Research Institute • Center for American Progress | iiptv.-'its <>* in-. r ,>-n(! m Cleon ! ouov 



355 


Clean-energy investment increases 

One way to allocate the flow of dean-energy investment funds would be to make a deter- 
mination as to which states have advantages in various investment areas, such as soiar or 
wind power, urban density for mass transit investments, or agriculture to produce targeted 
advances in next-generation biofuels. But whatever funding assumptions we would estab- 
lish from these criteria would inevitably be highly sensitive to our assumptions. That is, we 
do not have an empirically rigorous way to balance the importance of these geographic or 
climatic advantages for any given state or region relative to the economic resources avail- 
able in other regions. 

With this in mind, we considered two approaches to assigning investment levels for each 
state based on two easily observable and measurable traits for each state: state gross 
domestic product and population levels. 

Distributing the total $150 billion in clean-energy investments on the basis of each state's share 
of total GDP means assigning proportions of spending based on existing patterns of financial 
investments and levels of development This provides an accurate measure of how dean energy 
investments would flow if they followed current levels of economic development across the 
states. Distributing the funds based on each state's population assumes a more egalitarian 
approach, with each person in the country effectively receiving an equal dollar claim on the over- 
all pool of investment funds. We then try to balance these two considerations, recognizing that 
building retrofits, for example, will in part follows pattern based on population density, but that 
new capital investment will also naturally flow toward areas of pre-existing capital investment in 
industry, infrastructure, and building stock. 

In our view, both a GDP-share and a population-based allocation of funds represent 
reasonable criteria for estimating what state-level dean-energy investments should be. 
This is because, regardless of a state's topography or climate, major opportunities for 
dean-energy investments exist now and will grow with time. Accordingly, our approach 
is to calculate what the allocation of new investment funds would be under both the GDP- 
and population- based approaches, and use the midpoint of these two calculations as our 
figure for each state's allocation of the total $150 billion in new dean-energy investments. 


Fossil fuel spending declines 

Similar issues arise in deciding an approach for estimating the distribution of declines in fos- 
sil fuel spending across the states. One approach would be to distribute the cuts in propor- 
tion to the existing levels of fossil fuel spending in each state. According to this standard, 
oil-producing states such as Texas, Louisiana, and Oklahoma and coal-producing regions 
such as the Appalachian region and Montana would experience larger overall spending 
reductions than other states in which the fossil fuel industry plays a less significant role. 


58 Political Economy Research Institute • Center for American Progress j >. '< 'Vu <n-- au a- . isv t m 



356 


Under this scenario, the costs of the transition from a fossil fuel to a clean-energy based 
economy would therefore fall disproportionately on states that have large-scale fossil fuel 
industries. But if we used this criterion for allocating the distribution of fossil fuel spending 
declines, we would be contradicting a principle incorporated into the draft language of the 
ACESA, which is to compensate people and communities tied to the fossil fuel industry as 
one feature of the transition to a dean-energy economy. 

Thus, to remain consistent with the policy approach incorporated into the ACESA, we follow 
the same principle which we used for al